Working Paper: CEPR ID: DP2471
Authors: Giovanni Bruno; Anna M. Falzoni
Abstract: This paper investigates the extent to which expansion of international production by US multinationals reduces labour demand at home and at other foreign locations in the presence of labour adjustment costs. The adjustment-cost model of the firm is applied to estimate short-run and long-run price elasticities between home and foreign labour, using dynamic panel data techniques. Evidence is found of significant adjustment costs for employment in Latin American and Canadian affiliates. Also, due to slow adjustments, the relationship between employment in US parents and in Latin American affiliates is reversed from the short to the long-run, changing from substitution into complementarity. Finally, labour substitution prevails both in the short and in the long-run between locations in the Western Hemisphere and in Europe.
Keywords: multinational corporations; adjustment costs; labour demand; dynamic duality
JEL Codes: F23; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expansion of US MNCs into foreign markets (F23) | Reduction in domestic labour demand (J29) |
| Employment in US parent firms (F23) | Employment in Latin American affiliates (O54) |
| Employment in US parent firms (F23) | Employment in foreign affiliates (F29) |
| Adjustment costs (J30) | Employment adjustments in MNCs (F23) |