Adjusting Labour Demand: Multinational vs. National Firms
A Cross-European Analysis
Abstract
This paper provides a cross-country perspective to the firm-level analysis of the relation between
foreign ownership and labour demand. We estimate labour demand equations in eleven European
countries using dynamic panel data techniques on samples that permit to distinguish the ownership
status of firms. We find that the employment adjustment is significantly faster in MNEs’ affiliates,
irrespective of the country investigated. As for the wage elasticity of labour demand, MNEs show
smaller elasticities compared with national firms, and very little variation across countries. Cross-
country correlations show that the relative value of wage elasticities in MNEs on that in NEs is
positively related to country-level indexes of labour market regulation (employment protection, union
presence,...). We interpret the results as follows. MNEs tend to have a more rigid demand for total
labour (possibly due to a different skill composition). However, being MNEs relatively “footloose”, this
difference tends to vanish as the rigidity of employment regulations rises.
Keywords: Multinational firms, labour demand elasticity, employment adjustment costs.
JEL Classification: F23, J23.
Giorgio Barba Navaretti
Dipartimento di Economia Politica e Aziendale
Università degli Studi di Milano
Via Conservatorio 7
20121 Milano-Italy
Tel +39 0250321521
Fax +39 0250321505
Email [email protected]
Daniele Checchi
Dipartimento di Economia Politica e Aziendale
Università degli Studi di Milano
Via Conservatorio 7
20121 Milano-Italy
Tel +39 0250321519
Fax +39 0250321505
Email [email protected]
Alessandro Turrini
Centro Studi Luca d’Agliano
Univesità Bocconi
Via Sarfatti 25
20136 Milano-Italy
Tel +39025863398
Fax +390258363399
Email: [email protected]
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