Working Paper: CEPR ID: DP2323
Authors: Henrik Braconier; Karolina Ekholm
Abstract: This study uses data on Swedish multinationals to estimate cross elasticities of labour demand in different locations. With a vertical decomposition of the firm's activities, whether there is substitution or complementarity between employment in different parts of the firm will depend on whether wage changes lead to a relocation of activities or simply to changes in marginal costs and/or demand for inputs in other parts of the firms. We find that there is some evidence of a substitutionary relationship between employment in the Swedish parts of the firms and employment in other high-income locations, but we do not find any evidence of substitution stemming from employment in low-income locations. We find mainly a relationship of complementarity between employment in different affiliates.
Keywords: Labour Demand; Multinational Firms; Vertically Integrated
JEL Codes: F23; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage changes in Sweden (J31) | employment in high-income affiliates (F29) |
| employment in high-income affiliates (F29) | employment in Swedish parts of the firms (M51) |
| wage competition from low-wage countries (F66) | employment in Sweden (J68) |
| wage increases in one low-wage location (J31) | employment in similar low-wage affiliates (J79) |
| employment in low-wage affiliates (F66) | employment in Swedish parts of the firms (M51) |