Working Paper: NBER ID: w14776
Authors: Marc-Andreas Muendler; Sascha O. Becker
Abstract: Employment at multinational enterprises (MNEs) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. We document a complementarity bias when the extensive margin is excluded and detect salient labor substitution at both margins for German manufacturing MNEs. With a one-percent increase in home wages, for instance, MNEs add 2,000 jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages removes 730 German MNE jobs.
Keywords: multinational enterprises; labor demand; wage differentials; employment; international trade
JEL Codes: C14; C24; F21; F23; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage differentials (J31) | MNEs' employment at foreign locations (F23) |
| 1% increase in home wages (J31) | addition of 2,000 jobs in Eastern Europe (F29) |
| 1% drop in Eastern European wages (F66) | loss of 730 jobs at German MNEs (J63) |
| home employment (D13) | foreign employment (F22) |
| ignoring the extensive margin (C24) | underestimating the impact of wage changes on employment outcomes (F66) |