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Margins of Multinational Labor Substitution

  • Marc-Andreas Muendler
  • Sascha O. Becker

Employment at multinational enterprises (MNEs) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. We document a complementarity bias when the extensive margin is excluded and detect salient labor substitution at both margins for German manufacturing MNEs. With a one-percent increase in home wages, for instance, MNEs add 2,000 jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages removes 730 German MNE jobs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14776.

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Date of creation: Mar 2009
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Publication status: published as Marc-Andreas Muendler & Sascha O. Becker, 2010. "Margins of Multinational Labor Substitution," American Economic Review, American Economic Association, vol. 100(5), pages 1999-2030, December.
Handle: RePEc:nbr:nberwo:14776
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