1. Introduction
This paper addresses one particular aspect of the globalisation-labour market nexus, namely the
implications of inward FDIs activity on the characteristics of labour demand in host countries. FDI
flows directed to developed economies, mainly in the form of mergers and acquisitions, have been
growing at an accelerated pace throughout the past decade (see, e.g., UNCTAD (1999), Lipsey (2000),
Shatz and Venables (2001)). Especially in the case of European countries, a substantial share of
productive activities currently falls under foreign control.1 Policy makers and economic actors
participate to this tendency with mixed feelings. On the one hand, inward FDIs are generally perceived
to benefit domestic employment by increasing productivity in the owned plants and generating positive
spillovers to local firms. On the other hand, because of the “footloose” nature of multinational firms,
the concern is sometimes raised that employment downsizing in response to negative shocks would
occur more easily in foreign-owned plants, so that inward FDIs would also be associated with higher
job insecurity and reduced unions’ power.
There are reasons to expect that multinational enterprises (henceforth MNEs) may adjust
employment in their subsidiaries more easily and less costly than domestic firms (henceforth NEs).
First of all, MNEs have the possibility of relocating employment across subsidiaries, and this helps to
reduce costs related to firing and hiring personnel. Second, multinational firms may be able to bargain
from a privileged position with (national or local) governments and unions, thus obtaining sometimes
exceptions on hiring and firing practices.2 Moreover, being MNEs less committed towards the
countries hosting their subsidiaries, they may be in a better position to resist the pressures coming by
public authorities concerned with local employment conditions. The fact that a given establishment is
owned by an MNE may have implications not only for the speed of employment adjustment but also
for the magnitude of the adjustment in response to given shocks. In particular, this may matter in terms
of wage elasticity. On the one hand, the overall labour demand in MNEs subsidiaries is likely to be
more rigid, because characterized by a higher intensity of skilled labour, estimated to be less elastic to
wages (see, e.g., Hamermesh (1993)).3 On the other hand, keeping equal the skill composition of labour
1 The inward FDI stock (as a percentage of GDP) was 11.1 in Western Europe in 1990 and 22.4 in 1999, while the same
figures were 9.2 and 17.3 for the world average and 8.4 and 14.5 for developed countries on aggregate (UNCTAD (2001)).
2There is evidence, for instance, that MNEs have managed in a number of countries to bargain wages at a more
decentralized level compared with domestic firms (Katz (1993), Ehremberg (1994)). Moreover, in some countries and
regions (e. g., export processing zones) less stringent hiring and firing rules have been granted to MNEs with the purpose of
attracting FDI. For theoretical models of wage bargaining between unions and multinationals see Mezzetti and Dinopoulos
(1991) and Zhao (1998).
3 See also Markusen (2002) for a survey of stylised facts on MNEs and for theory and evidence on the relation between the
multinational status and the skill composition of employment.