The name is absent

labour representatives, are in a better to position to bypass regulations affecting employment
adjustment than purely national firms.

5. Conclusions

It is often argued that MNEs face lower costs than NEs in hiring and firing labour. As a consequence,
they are expected to respond to shocks in technology, output and factor prices by adjusting their labour
demand faster and to a greater extent than NEs. This paper examines if this is the case, by estimating
dynamic labour demands for the two types of firms in elevan European countries.

In line with general beliefs, we find that MNEs adjust labour demands faster than NEs in all the
sample countries. Within a year they achieve their optimal labour demand, whereas national firms take
longer. In contrast, the extent of the adjustment is more limited: MNEs have generally smaller (in
absolute terms) factor price and output long-run elasticities than NEs. We attribute the lower elasticities
of MNEs to the higher skill intensity of their work force, although this cannot be directly measured in
our database. Indirect evidence of this effect can nevertheless be derived from educational attainments
in the total population and from average labour costs. Conditional on lower elasticity, MNEs enjoy a
greater flexibility in employment adjustment with respect to NEs when labour and product markets are
strictly regulated and/or unions are more powerful.

Our results address some of the worries emerging in the debate on the role of MNEs. Although
MNEs create and destroy jobs faster than NEs, they are able to adjust more smoothly to shocks
affecting their labour demands. For any given wage increase, for example, in the longer run MNEs
reduce total employment less than national firms. In a sense, average jobs in MNEs are “safer” than in
NEs. Also, we find that labour market regulations are quite irrelevant to the labour market behaviour of
MNEs. These firms appear to be able to reach their optimal labour demand at fast speed independently
of the labour market regime, and their long-run wage elasticity shows little variation across countries.
Thus, concerns that labour market regulation may scare away foreign direct investments seem ill placed.

15

<<   13   14   15   16   17   18   19   >>

More intriguing information