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Multinational Corporations, Wages and Employment: Do Adjustment Costs Matter?

Author

Listed:
  • Giovanni S. F. Bruno

    (Bocconi University)

  • Anna M. Falzoni

    (University of Bergamo)

Abstract
This paper investigates the extent to which expansion of international production by US multinational reduces labor demand at home and at other foreign locations. The few existing empirical studies on this subject maintain, along with firm’s cost minimizing behavior, perfectly variable inputs. In our view, this constitute s a strong restriction, which may seriously bias the short run cross-price elasticity estimates. We offer simple examples in which this is actually the case. We suggest an alternative approach to the problem, which explicitly considers for the presence of adjustment costs. A dynamic model of the firm is applied to estimate short-run and long-run cross-price elasticities between home and foreign labor. We find evidence of significant adjustment costs for employment in Latin American and Canadian affiliates, We also find that, in some instances, due to the presence of slow input adjustments, the complementarity/substitution relationship between employment in different international locations is reversed from the short to the long-run.

Suggested Citation

  • Giovanni S. F. Bruno & Anna M. Falzoni, 1999. "Multinational Corporations, Wages and Employment: Do Adjustment Costs Matter?," Development Working Papers 130, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:130
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    File URL: https://www.dagliano.unimi.it/media/WP1999_130.pdf
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    Citations

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    Cited by:

    1. Jaan Masso & Urmas Varblane & Priit Vahter, 2010. "The Impact Of Outward Fdi On Home-Country Employment In A Low-Cost Transition Economy," World Scientific Book Chapters, in: David A Dyker (ed.), Network Dynamics In Emerging Regions Of Europe, chapter 16, pages 333-360, World Scientific Publishing Co. Pte. Ltd..
    2. Jozef Konings & Alan Murphey, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from Firm Level Panel Data," William Davidson Institute Working Papers Series 371, William Davidson Institute at the University of Michigan.
    3. repec:lic:licosd:13103 is not listed on IDEAS
    4. Jozef Konings & Alan Patrick Murphy, 2006. "Do Multinational Enterprises Relocate Employment to Low-Wage Regions? Evidence from European Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 267-286, July.
    5. Stefano Federico & Gaetano Alfredo Minerva, 2008. "Outward FDI and Local Employment Growth in Italy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(2), pages 295-324, July.
    6. repec:lic:licosd:10001 is not listed on IDEAS
    7. repec:wsr:wpaper:y:2012:i:077 is not listed on IDEAS
    8. Ludo Cuyvers & Michel Dumont & Glenn Rayp & Katrien Stevens, 2005. "Home Employment Effects of EU Firms’ Activities in Central and Eastern European Countries," Open Economies Review, Springer, vol. 16(2), pages 153-174, April.
    9. Giorgio Barba Navaretti & Davide Castellani & Anne-Celia Disdier, 2006. "How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy," Development Working Papers 215, Centro Studi Luca d'Agliano, University of Milano.
    10. Blanas, Sotiris, 2012. "Intra-firm trade and employment in US manufacturing," Kiel Advanced Studies Working Papers 458, Kiel Institute for the World Economy (IfW Kiel).
    11. Stefano Federico & Gaetano Alfredo Minerva, 2005. "Fear of Relocation? Assessing the Impact of Italy’s FDI on Local Employment," Working Papers 102, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
    12. Giorgio Barba Navaretti & Davide Castellani, 2003. "Investments Abroad and Performance at Home Evidence from Italian Multinationals," Development Working Papers 180, Centro Studi Luca d'Agliano, University of Milano.
    13. Davide Castellani & Ilaria Mariotti & Lucia Piscitello, 2006. "Outward investments and skill upgrading. Evidence from the Italian case," KITeS Working Papers 185, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
    14. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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