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Margins of Multinational Labor Substitution

Author

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  • Muendler, Marc-Andreas
Abstract
Multinational labor deman responds to wage differentials at the extensive margin, when a multinational enterprise (MNE) expands into foreign locations, and at the intensive margin, when an MNE operates existing affiliates across locations. We derive conditions for parametric and nonparametric identification of an MNE model to infer elasticities of labor substitution at both margins, controlling for location selectivity. Prior studies rarely found foreign wages or operations to affect employment. Our strategy detects salient adjustments for German MNEs. With a one-percent increase in German wages, German MNEs add 2,000 manufacturing jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages is associated with an overall withdrawal of 730 MNE jobs from Germany.

Suggested Citation

  • Muendler, Marc-Andreas, 2006. "Margins of Multinational Labor Substitution," University of California at San Diego, Economics Working Paper Series qt6b2236xm, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt6b2236xm
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    More about this item

    Keywords

    Multinational enterprise; location choice; sample selectivity; labor demand; translog cost function; nonparametric estimation;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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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