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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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