relatively higher wage elasticity (see also the first quadrant of Figure 1). With respect to firing costs,
correlation analysis shows that the relative wage elasticity of MNEs tends to rise with measures of
rigidity of employment protection. This is easily understood by looking at the second quadrant of
Figure 1: in countries characterised by stricter employment protection (e.g., Italy and France) the
relative wage elasticity in MNEs is quite high (but still less than one), while in countries with more
flexible labour markets (e.g., the UK) the wage elasticity in MNEs is considerably smaller than that in
NEs. This confirms that MNEs are somehow in a better position to bypass country-specific regulations
concerning employment protection. Similar arguments apply to product market regulation, which is
also positively associated with relative wage elasticity (third quadrant of Figure 1). We also record a
positive correlation between relative wage elasticity and union density, suggesting that MNEs are
somehow able to counteract union power in countries where union are relevant (as measured by total
union membership — see fourth quadrant of Figure 1).
Table 4 — Cross- country correlation indices between relative wage elasticities
and proxies for labour market institutions — 11 countries — 1994-2000
|
Ratio of long-run | |
|
Population share with college degree______________________ |
0.3574 |
|
OECD overall rigidity indicator_________________________ |
0.3263 |
|
OECD strictness of protection for regular employment |
0.4090 |
|
OECD strictness of protection for temporary |
0.2149 |
|
OECD overall product market regulation_______________ |
0.3914 |
|
Wage bargaining centralisation____________________________ |
0.1324 |
|
Union net density___________________________________ |
0.4508 |
|
Definition (see equation (3)) |
Y 4/(1 "Tl) |
Note: Wage elasticities are considered in absolute terms
Source: calculations on coefficients reported in Table 3
Overall, we can summarise our results as follows. MNEs are characterised by lower wage
elasticity in the long run, irrespective of the country considered. While the wage elasticity in MNEs
does not show much variation across countries, that in NEs seems more affected by country-level
characteristics. Cross-country correlation analysis shows that the relative long-run wage elasticities in
MNEs tend to rise with measures of skill availability, employment protection, product market
regulation and union presence. This indicates that country-specific labour market regulations that tend
to limit the capacity of firms to adjust employment (thus reducing labour demand wage elasticties) have
a relatively smaller impact on MNEs. This evidence is consistent with the view that multinational firms,
being relatively footloose and having greater bargaining power vis-à-vis host-countries’ authorities and
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