Margins of Multinational Labor Substitution
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.
This working paper is a substantively revised version of the previously circulated CESifo Working Paper 1713 (May 2006). We thank Xiaohong Chen, Peter Egger, Gordon Hanson, Sebastian Kessing, Steve Redding, Deborah Swenson, Hal White and participants at various seminars and conferences for insightful suggestions. We thank Karolina Ekholm for wage data on Swedish MNEs, and Steve Redding for sharing code to compute market access statistics. Jennifer Poole, Robert Jäckle, Nadine Gröpl, Daniel Klein and Ming Zeng provided excellent research assistance. We gratefully acknowledge financial support from the Volkswagen Stiftung under grant 79366 and administrative and financial support from the Ifo Institute. Becker also gratefully acknowledges financial support from the Fritz Thyssen Stiftung. A comprehensive empirical supplement with results for numerous alternative specifications is available at URL econ.ucsd.edu/muendler. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Marc-Andreas Muendler & Sascha O. Becker, 2010. "Margins of Multinational Labor Substitution," American Economic Review, American Economic Association, vol. 100(5), pages 1999-2030, December. citation courtesy of