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Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data

Author

Listed:
  • Norbäck, Pehr-Johan

    (Research Institute of Industrial Economics (IFN))

  • Duanmu , Jing-Lin

    (School of Management)

  • Skedinger, Per

    (Research Institute of Industrial Economics (IFN))

Abstract

In this paper we show, theoretically and empirically, that stronger employment protection legislation (EPL) in a host country has important and differing effects on the various activities of multinational enterprises (MNEs). Using micro data on affiliates to Swedish multinational firms in 20 countries for the period of 1965–1998, we find that increased stringency in EPL is associated with fewer investments in new affiliates and lower employment in existing affiliates. We also find that it is mainly affiliate exports that are affected negatively by stronger EPL, while the impact on local sales is small. This is in accordance with our theoretical model, which predicts that the impact of EPL on the costs of competing firms is likely to put affiliates at a smaller disadvantage when selling for the local market than in the production for exports.

Suggested Citation

  • Norbäck, Pehr-Johan & Duanmu , Jing-Lin & Skedinger, Per, 2012. "Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data," Working Paper Series 935, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0935
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor market institutions; Firm heterogeneity; Oligopoly; Platform-FDI; Horizontal-FDI; Micro data;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General

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