The branches are located in the European Union, divided into (Northern, Southern), Central and Eastern Europe, or both. However, we find no evidence for such substitution effects between the employment of mothers and their subsidiaries in low-wage regions in the EU and in Central and Eastern Europe. We use company-level data from 1,067 medium and large parent companies, linked to their 2,078 subsidiaries in the EU and/or Central and Eastern Europe.
In contrast, we find no evidence of relocation effects for parent firms operating in the non-manufacturing sector. In our sample, almost half (48%) of the parent companies in the manufacturing sector have exclusively manufacturing subsidiaries. These patterns suggest that most of the job movement took place between parent companies in the EU and their affiliates located in the "North" of Europe.
Column (1) gives the results for the entire sample, and columns (2) and (3) for parent companies operating in the manufacturing and non-manufacturing sectors, respectively. On the other hand, we do not find a statistically significant effect of the decrease in salaries of affiliated companies located in the south of the EU and in Central and Eastern Europe. This suggests that job substitution or relocation in response to relative wage changes only takes place between parent firms (which are mostly located in the EU north) and their subsidiaries, which are also located in the EU north.
Furthermore, we find no statistically significant elasticities of substitution for our subsample of parent firms operating in the non-manufacturing sector as shown in column (3).
In the second and third columns of Table 5 we report the results for the sub-samples of parent companies operating in the manufacturing sector versus the non-manufacturing sector. We can see that the displacement effect, estimated by the coefficient on WNEU , is mainly driven by the sub-sample of parent firms operating in the manufacturing sector. A possible reason why we do not find substitution effects in the non-manufacturing sector may be due to the nature of these activities, as there are believed to be more non-tradables in the non-manufacturing sector.
This result is also based on the possibilities of substitution in the manufacturing sector, where the estimated short-term and long-term elasticity of substitution is 0.06 and 0.08, respectively. They are often characterized by high levels of intangible assets, which is often reflected in the skill composition of their workforce (Markusen, 1995). He finds that there has been a relocation of MNEs to low-wage countries, but finds no evidence that this has contributed to changes in the relative demand for less unskilled workers in the US.
As a measure of R&D intensity, we use intangible assets as a percentage of the parent company's total assets. In the previous results, no distinction was made between affiliates that operate in the same sector as their parent company versus affiliates that operate in a different sector than their parent company. However, many of the subsidiaries of manufacturing companies are active in wholesale and retail trade.
In Table 7 we report fixed effects estimates of manufacturing parents with subsidiaries operating in the same 2-digit sector, subsidiaries operating in a different 2-digit sector. Finally, in column 3, subsidiaries operating in a different 2-digit sector, but excluding the wholesale and trade sectors. We find that employment substitution between parents and their co-workers does occur, but only if they operate in a different sector.
This suggests that a reduction in labor costs in the northern EU affiliates of 10% is associated with a reduction in home (parent). A final experiment, reported in Appendix Table A2, considers employment equations for affiliates in the different regions. In contrast, we find that for affiliates located in the EU South, the labor costs of CEEC affiliates in the same MNE have a negative effect on employment in the EU South, suggesting that CEEC employment and employment in the South The EU is complementary.
However, due to data limitations, this article did not examine the employment consequences of the actual investment/location decision of multinationals. Further research into this latter topic seems important to assess the full impact of the increased global nature of companies. Companies in the dataset must meet at least one of the following criteria: number of employees greater than 100, total assets and operating revenues greater than USD 16 million and USD 8 million, respectively.
For the non-manufacturing sector, the coverage is somewhat weaker, as the average company size is typically smaller in the non-manufacturing sector. For some countries in the data, this is straightforward as companies are required by law to report their foreign subsidiaries (e.g. in Belgium and France). For those companies that report foreign-owned affiliates, the identification number of these affiliates in Amadeus is provided, which enabled us to retrieve the affiliates' financial statements and match them with the parent's financial statements.
However, only affiliates located in Europe or Central and Eastern Europe are provided in Amadeus, which does not allow us to investigate the behavior of affiliates in other regions of the world such as Africa, Asia, etc. Since some multinationals have more than one affiliate, we constructed the average values of the variables of interest adopted by all affiliates in Europe and the average values of the variables of interest adopted by all affiliates in Central and Eastern Europe. The MNE's total output (Y): the weighted sum of the value added of the parent company and the value added of its affiliates, where the weight represents the importance of the value added in the total value added of the parent company versus affiliates.
Wage cost per unit of the parent company (WP): the total wage bill of the parent company divided by the total employment of the parent company. Unit Wage Cost of Southern EU Subsidiaries (WASEU): the total average wage bill of all Southern EU-based subsidiaries of that particular MNE divided by the average total employment of all EU members - of the South of that particular MNE. Unit Wage Cost of Northern EU Subsidiaries (WANEU): the total average wage bill of all Northern EU-based subsidiaries of that particular MNE divided by the average total employment of all EU members - of the northern part of that particular MNE.
Unit Wage Cost of CEEC Branches (WACEEC): The average total wage bill of all CEEC branches of that particular MNE divided by the average total employment of all CEEC branches of that particular MNE. Some Tests of Panel Data Specification: Monte Carlo Evidence and Application to Employment Equations.” The Review of Economic Studies, 58, p. Foreign Direct Investment and Employment: Domestic Experiences in the USA and Sweden." Gospodarski vestnik, 107 (November), pp.
An empirical assessment of the proximity – concentration trade – between multinational sales and trade.” The American Economic Review, 87 (4), pp. Multinational corporations, wages and employment: do adjustment costs matter? Center for Economic Policy Research, Working Paper No. Liquidity Constraints and Investment in Transition Economies: The Case of Bulgaria.” Economics of Transition, 8: pp.453–75.
Multinationals versus national companies – a pan-European analysis.” Center for Economic Policy Research, Discussion no.