Firm dynamics and employment               adjustment: the role of multinationals                              Eesti Pank ...
Introduction: the role of multinational firms (MNFs)          Importance of MNFs for Belgium                            2...
Introduction: the role of multinational firms (MNFs)          Importance of MNFs for Belgium                            2...
Introduction: the role of multinational firms (MNFs)          Importance of MNFs for Belgium                            2...
Introduction: the role of multinational firms (MNFs)    MNFs are large employment providers ...    … but MNFs may be char...
Employment dynamics during the crisis   Job creation - job destruction (Davis, Haltiwanger and Schuh, 1996)   Dataset an...
Employment dynamics during the crisis(in thousands)             1998       1999    2000     2001     2002     2003       2...
Employment dynamics during the crisis(in thousands)             1998       1999    2000     2001     2002     2003       2...
Employment dynamics during the crisis(in thousands)             1998       1999    2000     2001     2002     2003       2...
Employment dynamics during the crisis(in thousands)             1998       1999    2000     2001     2002     2003       2...
Employment dynamics during the crisis(in thousands)             1998       1999    2000     2001     2002     2003       2...
The probability of firm exit   The footlose nature of multinationals   Conclusions from previous studies              V...
The probability of firm exit   Firm-level variables              size (measured by employment) and age              TFP...
The probability of firm exit   Random effects Probit model   Endogeneity into account endogeneity wrt individual effects...
The probability of firm exit Probit models for the probability of exit - marginal effects                                 ...
The probability of firm exit Probit models for the probability of exit - marginal effects                                 ...
Labour adjustment costs of incumbents   Labour adjustment of incumbents              Barba Navarretti, Checci, Turini (2...
Labour adjustment costs of incumbents   Dataset         1998-2007         Survey on FDI + (annualised) annual accounts ...
Labour adjustment costs of incumbents: derivation   Adjustment costs function (Alonso-Borrego, 1998)        differences ...
Labour adjustment costs of incumbents: estimation     Euler equation for worker-type j     Differences between domestic ...
Labour adjustment costs of incumbents:Estimates of production function coefficients    Allowing for market power        ...
Labour adjustment costs of incumbents: estimates                       baseline aB                   291.84*** aBMNF      ...
Labour adjustment costs of incumbents: estimates                       baseline aB                   291.84*** aBMNF      ...
Labour adjustment costs of incumbents: estimates                       baseline                                 Total adju...
Labour adjustment costs of incumbents: explanations   Home bias    MNFs protect home employment, and downsize abroad → Be...
Labour adjustment costs of incumbents: explanations               baseline      Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: explanations                             Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: explanations                             Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: explanations                             Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: explanations                             Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: explanations                             Bel. MNF         turn ftc         early re...
Labour adjustment costs of incumbents: estimates Total adjustment costs for alternative specifications, ∆LW = +17006005004...
Labour adjustment costs of incumbents : the role of size        Meghir, Ryan, Van Reenen (1996) specification for quadrat...
Labour adjustment costs of incumbents : the role of size            Generalised adjustment cost function → θ1, θB2 θB3, θ...
Labour adjustment costs of incumbents: estimates                  no control        controlling         Meghir            ...
Labour adjustment costs of incumbents: estimates                  no control        controlling         Meghir            ...
Conclusion1. MNFs are large emplyoment providers --- but ajust more and differently   e.g. during 2008-2009    most emplo...
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Catherine Fuss (National Bank of Belgium). Firm dynamics and employment adjustment: the role of multinationals

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Eesti Pank seminar, Tallinn, January 23 2013

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Catherine Fuss (National Bank of Belgium). Firm dynamics and employment adjustment: the role of multinationals

  1. 1. Firm dynamics and employment adjustment: the role of multinationals Eesti Pank seminar, Tallinn, January 23 2013P. Blanchard (U.Paris Est Créteil, ERUDITE), E. Dhyne (BNB, U. Mons)C. Fuss (BNB, ULB), C. Mathieu (U. Paris Est Créteil, ERUDITE)The views expressed in this paper are those of the author and do notnecessarily reflect the views of the National Bank of Belgium.
  2. 2. Introduction: the role of multinational firms (MNFs)  Importance of MNFs for Belgium 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Inwards FDI flows/GDP Belgium 84 88 91 113 129 100 120 177 169 201 192 EU 27 29 32 34 36 34 41 44 36 45 45 US 28 25 19 22 23 22 25 25 17 21 23 Source: UNCTAD (2009)  MNFs are large employment providers ... ... 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firmsemployment(x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123average per firm 9 9 9 8 7 7 7 7 7 7 8 8MNFsemployment(x1000) 508 522 539 714 707 713 710 689 706 709 688 657average per firm 261 270 266 267 252 238 239 249 264 270 273 267 Notes: sample of firms with at least once: average number of employees>0, tangible fixed assets>100, with main activity in the manufacturing, construction or market services sectors. INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  3. 3. Introduction: the role of multinational firms (MNFs)  Importance of MNFs for Belgium 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Inwards FDI flows/GDP Belgium 84 88 91 113 129 100 120 177 169 201 192 EU 27 29 32 34 36 34 41 44 36 45 45 US 28 25 19 22 23 22 25 25 17 21 23 Source: UNCTAD (2009)  MNFs are large employment providers ... ... 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firmsemployment(x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123average per firm 9 9 9 8 7 7 7 7 7 7 8 8MNFsemployment(x1000) 508 522 539 714 707 713 710 689 706 709 688 657average per firm 261 270 266 267 252 238 239 249 264 270 273 267 Notes: sample of firms with at least once: average number of employees>0, tangible fixed assets>100, with main activity in the manufacturing, construction or market services sectors. INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  4. 4. Introduction: the role of multinational firms (MNFs)  Importance of MNFs for Belgium 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Inwards FDI flows/GDP Belgium 84 88 91 113 129 100 120 177 169 201 192 EU 27 29 32 34 36 34 41 44 36 45 45 US 28 25 19 22 23 22 25 25 17 21 23 Source: UNCTAD (2009)  MNFs are large employment providers ... ... 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firmsemployment (x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123average per firm 9 9 9 8 7 7 7 7 7 7 8 8MNFsemployment (x1000) 508 522 539 714 707 713 710 689 706 709 688 657average per firm 261 270 266 267 252 238 239 249 264 270 273 267 Notes: sample of firms with at least once: average number of employees>0, tangible fixed assets>100, with main activity in the manufacturing, construction or market services sectors. INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  5. 5. Introduction: the role of multinational firms (MNFs) MNFs are large employment providers ... … but MNFs may be characterised by higher employment volatility  international reallocation is easier  home bias in adverse time Two reasons of employment losses  firm exit  labour adjustment by incumbents→ outline of the talk  Employment dynamics during the crisis : firm exit vs incumbents adjustment  The footlose nature of multinationals  Labour adjustment costsINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  6. 6. Employment dynamics during the crisis Job creation - job destruction (Davis, Haltiwanger and Schuh, 1996) Dataset and variables definition  sources: Survey on FDI + (annualised) annual accounts  sample: manufacturing, construction and market services over 1997-2010  exit in t if in t+1 no employment, no total assets, tangible fixed assets<100.  MNF if owned by at least 50% by a foreign company, or having outwards FDI of at least 10%INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  7. 7. Employment dynamics during the crisis(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firms∆L Incumbents 48 41 37 31 6 4 16 23 31 43 38 -8(# firms) 106.83 114.26 119.00 122.27 125.72 129.29 132.07 135.32 137.70 139.42 140.82 141.36∆L exiters -22 -31 -26 -31 -27 -21 -19 -19 -21 -23 -27 -29(# firms) 2.28 3.02 3.65 3.68 3.64 3.58 3.92 3.56 4.14 4.49 4.81 5.51MNFs∆L Incumbents 4 -3 12 17 -10 -12 -2 -2 10 4 -8 -36(# firms) 1.90 1.90 1.99 2.63 2.76 2.95 2.93 2.72 2.62 2.59 2.50 2.41∆L exiters -6 -4 -14 -7 -6 -8 -4 -5 -4 -5 -3 -12(# firms) 0.05 0.04 0.04 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.04 0.08 Notes: Exit year = last year the firm is observed and no employment, no positive total assets, no tangible fixed assets>100. Incumbents are firms observed in t and t-1 INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  8. 8. Employment dynamics during the crisis(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firms∆L Incumbents 48 41 37 31 6 4 16 23 31 43 38 -8(# firms) 106.83 114.26 119.00 122.27 125.72 129.29 132.07 135.32 137.70 139.42 140.82 141.36∆L exiters -22 -31 -26 -31 -27 -21 -19 -19 -21 -23 -27 -29(# firms) 2.28 3.02 3.65 3.68 3.64 3.58 3.92 3.56 4.14 4.49 4.81 5.51MNFs∆L Incumbents 4 -3 12 17 -10 -12 -2 -2 10 4 -8 -36(# firms) 1.90 1.90 1.99 2.63 2.76 2.95 2.93 2.72 2.62 2.59 2.50 2.41∆L exiters -6 -4 -14 -7 -6 -8 -4 -5 -4 -5 -3 -12(# firms) 0.05 0.04 0.04 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.04 0.08 Notes: Exit year = last year the firm is observed and no employment, no positive total assets, no tangible fixed assets>100. Incumbents are firms observed in t and t-1  more domestic firms have exited in 2008 INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  9. 9. Employment dynamics during the crisis(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firms∆L Incumbents 48 41 37 31 6 4 16 23 31 43 38 -8(# firms) 106.83 114.26 119.00 122.27 125.72 129.29 132.07 135.32 137.70 139.42 140.82 141.36∆L exiters -22 -31 -26 -31 -27 -21 -19 -19 -21 -23 -27 -29(# firms) 2.28 3.02 3.65 3.68 3.64 3.58 3.92 3.56 4.14 4.49 4.81 5.51MNFs∆L Incumbents 4 -3 12 17 -10 -12 -2 -2 10 4 -8 -36(# firms) 1.90 1.90 1.99 2.63 2.76 2.95 2.93 2.72 2.62 2.59 2.50 2.41∆L exiters -6 -4 -14 -7 -6 -8 -4 -5 -4 -5 -3 -12(# firms) 0.05 0.04 0.04 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.04 0.08 Notes: Exit year = last year the firm is observed and no employment, no positive total assets, no tangible fixed assets>100. Incumbents are firms observed in t and t-1  more domestic firms have exited in 2008  incumbent MNFs start downsizing in 2008 INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  10. 10. Employment dynamics during the crisis(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firms∆L Incumbents 48 41 37 31 6 4 16 23 31 43 38 -8(# firms) 106.83 114.26 119.00 122.27 125.72 129.29 132.07 135.32 137.70 139.42 140.82 141.36∆L exiters -22 -31 -26 -31 -27 -21 -19 -19 -21 -23 -27 -29(# firms) 2.28 3.02 3.65 3.68 3.64 3.58 3.92 3.56 4.14 4.49 4.81 5.51MNFs∆L Incumbents 4 -3 12 17 -10 -12 -2 -2 10 4 -8 -36(# firms) 1.90 1.90 1.99 2.63 2.76 2.95 2.93 2.72 2.62 2.59 2.50 2.41∆L exiters -6 -4 -14 -7 -6 -8 -4 -5 -4 -5 -3 -12(# firms) 0.05 0.04 0.04 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.04 0.08 Notes: Exit year = last year the firm is observed and no employment, no positive total assets, no tangible fixed assets>100. Incumbents are firms observed in t and t-1  more domestic firms have exited in 2008  incumbent MNFs start downsizing in 2008  domestic incumbents start downsizing in 2009, and exits remain substantial INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  11. 11. Employment dynamics during the crisis(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Domestic firms∆L Incumbents 48 41 37 31 6 4 16 23 31 43 38 -8(# firms) 106.83 114.26 119.00 122.27 125.72 129.29 132.07 135.32 137.70 139.42 140.82 141.36∆L exiters -22 -31 -26 -31 -27 -21 -19 -19 -21 -23 -27 -29(# firms) 2.28 3.02 3.65 3.68 3.64 3.58 3.92 3.56 4.14 4.49 4.81 5.51MNFs∆L Incumbents 4 -3 12 17 -10 -12 -2 -2 10 4 -8 -36(# firms) 1.90 1.90 1.99 2.63 2.76 2.95 2.93 2.72 2.62 2.59 2.50 2.41∆L exiters -6 -4 -14 -7 -6 -8 -4 -5 -4 -5 -3 -12(# firms) 0.05 0.04 0.04 0.05 0.06 0.06 0.06 0.06 0.06 0.06 0.04 0.08 Notes: Exit year = last year the firm is observed and no employment, no positive total assets, no tangible fixed assets>100. Incumbents are firms observed in t and t-1  more domestic firms have exited in 2008  incumbent MNFs start downsizing in 2008  domestic incumbents start downsizing in 2009, and exits remain substantial  MNFs exits increased in 2009 and incumbent MNFs downsizing increased in 2009 INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  12. 12. The probability of firm exit The footlose nature of multinationals Conclusions from previous studies  Van Beveren (2007), for Belgium, Alvarez & Görg (2009); Bernard & Jensen (2009); Bernard & Sjoholm (2003); Görg & Strobl (2003)  MNFs have a smaller unconditional probability of exit than domestic firms  Controlling for firm and sector-level characteristics, MNFs have a similar or even higher exit probability than domestic firms→ random effects Probit model for the probability of exit  including sunk costs in addition to traditional variables  taking two sources of endogeneity into accountINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  13. 13. The probability of firm exit Firm-level variables  size (measured by employment) and age  TFP estimated using Ackerberg et al. procedure extended to account for firm exit  sunk costs = fraction of investment (in tangible and intangible capital) that is not leased and cannot be resold on second-hand market I I leased K K leased sunkit = (P itIit - P itI it) + (1-δit)(1-γit).(P it-1Kit-1 -Pit-1K it-1) δ : depreciation rate measured by the yearly sector-level mean γ : resale rate, approximated by the average sector-level ratio of sales and disposals over the capital stock. sunk costs represent barriers to entry and are lost in case of exit → barriers to exit in the case re-entry is likely. Sector-level variables  sector growth of value added  competition: Herfindahl index of firm turnover→ MNFs are larger, older, more productive and bear larger sunk costs they operate in sectors with higher growth and lower competitionINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  14. 14. The probability of firm exit Random effects Probit model Endogeneity into account endogeneity wrt individual effects (Mundlak) Endogeneity wrt decision to exit (Rivers-Vuong IV two-step procedure)  e.g. "the shadow of death" (Griliches and Regev, 1995) → TFP, sunk costs and size potentially endogenous  step 1: regress endogenous variables on one lag of the enodgenous varable and MNF, age, competition, sector growth, sector dummies  step 2: include teh fitted value and residual of step 1 in the Probit  test of endogeneity: t-stat of step 1 residual  instruments: one lag of endogenous variable, MNF dummy, competition, sector growth, scetor dummiesINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  15. 15. The probability of firm exit Probit models for the probability of exit - marginal effects (1) (2) MNFit -0.028*** 0.058*** log(TFPit) -0.037*** Ageit 0.050*** log(Sunkit) -0.015*** log(Sizeit) -0.046*** Competitionst -0.019* Sector growthst 0.004 log L -152155 -116413 Notes: Estimation over 1998-2008. All equations include year and nace 1-digit sector dummies; *** significant at the 1% level, ** at the 5% level, * at the 10% level.MNFs have a higher (unconditional) probability of exit than domestic firmsINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  16. 16. The probability of firm exit Probit models for the probability of exit - marginal effects (1) (2) MNFit -0.028*** 0.058*** log(TFPit) -0.037*** Ageit 0.050*** log(Sunkit) -0.015*** log(Sizeit) -0.046*** Competitionst -0.019* Sector growthst 0.004 log L -152155 -116413 Notes: Estimation over 1998-2008. All equations include year and nace 1-digit sector dummies; *** significant at the 1% level, ** at the 5% level, * at the 10% level.• conditional on firm an sector char., MNFs are more likely to exit (5.8 pp)• sunk costs act as barriers to exitINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  17. 17. Labour adjustment costs of incumbents Labour adjustment of incumbents  Barba Navarretti, Checci, Turini (2003) estimate labour demand equations and find that MNFs adjust employment faster than domestic firms → suggests lower adjustment costs Why would adjustment costs be different?  all firms operating in Belgium face the same labour market legislation and institutions?  economies of scale in human resources management, no labour indivisibility issues  use of flexible contracts and procedures  higher bargaining power wrt governments and unions (Haskel et al. 2007)  international production scope allows for employment reallocation → reallocation threat that reinforces bargaining powerINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  18. 18. Labour adjustment costs of incumbents Dataset  1998-2007  Survey on FDI + (annualised) annual accounts + Social Security Data (remuneration and employment by type of worker)  firms with at least 10 employees and that report detailed annual accounts  maufacturing, construction, trade, market services Estimation of labour adjustment costs  dynamic labour demand equation based on structural Euler equation for net employment flows (Pfann and Palm, 1993, Alonso-Borrego, 1996, Mathieu and Nicolas, 2006)  cubic labour adjustment costs function (Alonso-Borrego, 1998)  differences between blue-collar and white-collar workers (Bresson et al., 1992, Abowd and Kramarz, 2003, Kramarz and Michaud, 2010)  differences between employment downsizing and employment upsizing (Goux et al. 2001; Lundgren and Sjöstom, 2001, Mathieu and Nicolas, 2006)  differences between MNFs and domestic firmsINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  19. 19. Labour adjustment costs of incumbents: derivation Adjustment costs function (Alonso-Borrego, 1998)  differences between blue-collar workers and white-collar workers  convexity: aB and aW  asymmetry: when dB, dW<0 downsizing cost are larger than upsizing costs  cross adjustment term: when g<0, adjusting both LB and LW in the same direction reduces costs but substitution between LB and LW increases costs Euler equation for worker-type j  assuming Cobb-Douglas production function and Cournot competition:  β is the discount factor  αj is the Cobb Douglas coefficient of type j labour  µ is the markupINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  20. 20. Labour adjustment costs of incumbents: estimation Euler equation for worker-type j Differences between domestic firms and MNFs α j Qit Pst µ Litj − Witj = (a + a j j MNF j [ MNFit )(∆Lit − βEt ∆Lij,t +1 ) + ] (d + d j j MNF ( MNFit ) ∆Lit − βEt ∆Lij,t +1 + j 2 [ 2 ]) (g + g [ MNF MNFit )(∆Lit − β Et ∆Li ,t +1 ) k k ] Estimation by System GMM  i.e. firms form rational expectations  the discount factor is set to β = 0.97 (robustness β = 0.95, 0.99)  αj/µ obtained from estimates of production function  TFP estimated by Ackerberg et al. (2006) procedureINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  21. 21. Labour adjustment costs of incumbents:Estimates of production function coefficients Allowing for market power  → estimates of αK/µ, αB/µ, αW/µ (Griliches - Mairesse, 1995) Ackerberg, Caves and Frazer (2006)  assuming that capital, blue-collar workers and white-collar workers are fixed inputs αK/µ αB/µ αW /µFood and textile 0.178 0.424 0.388 (0.011) (0.015) (0.016)Wood, paper, chemicals, metal and non metal products, machinery 0.161 0.358 0.437 (0.006) (0.009) (0.009)Equipment and recycling 0.138 0.354 0.433 (0.011) (0.013) (0.018)Energy and construction 0.106 0.502 0.338 (0.007) (0.007) (0.006)Trade and hotels and restaurants 0.126 0.176 0.561 (0.005) (0.005) (0.008)Communication and financial intermediation 0.163 0.268 0.361 (0.005) (0.006) (0.007)Real estate and business activities 0.179 0.071 0.612 (0.013) (0.018) (0.034)Note: Estimates based on the 1997-2005 period; 58594 observations and 8688 firms;Bootstrap-standard errors in brackets.
  22. 22. Labour adjustment costs of incumbents: estimates baseline aB 291.84*** aBMNF -93.67 dB -7.99** dBMNF 7.98** aW 1191.58*** aWMNF -692.26*** dW -20.98** dWMNF 14.40 g -283.13*** gMNF 185.13 Sargan 30.41Notes: 37553 observations and 5544 firms over the period 1998-2006.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  23. 23. Labour adjustment costs of incumbents: estimates baseline aB 291.84*** aBMNF -93.67 dB -7.99** dBMNF 7.98** aW 1191.58*** aWMNF -692.26*** dW -20.98** dWMNF 14.40 g -283.13*** gMNF 185.13 Sargan 30.41Notes: 37553 observations and 5544 firms over the period 1998-2006.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  24. 24. Labour adjustment costs of incumbents: estimates baseline Total adjustment costs for a net employment increase of 1 aB 291.84*** 700 aBMNF -93.67 600 dB -7.99** 500 dBMNF 7.98** 400 aW 1191.58*** 300 aWMNF -692.26*** dW -20.98** 200 dWMNF 14.40 100 g -283.13*** 0 ∆LB = +1 ∆LW = 0 ∆LB = 0 ∆LW = +1 gMNF 185.13 domestic firms multinational firms Sargan 30.41Notes: 37553 observations and 5544 firms over the period 1998-2006.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  25. 25. Labour adjustment costs of incumbents: explanations Home bias MNFs protect home employment, and downsize abroad → Belgian MNF dummy: More intensive/efficient use of labor flexibility tools  fixed-term contract turnover  early retirement dummy α j Qit Pst µ Litj − Witj = (a + a j j MNF j j [ ] MNFit + a proxy proxyit )(∆Lit − βEt ∆Lij,t +1 ) + (d + d j j MNF j (j [ MNFit + d proxy proxyit ) ∆Lit − βEt ∆Lij,t +1 + 2 2 ]) (g + g MNF [ MNFit + g proxy proxyit )(∆Lk − βEt ∆Lk,t +1 ) it i ] Higher bargaining power wrt unions  sample split according to compulsory union representation at the firm level (employees>=50) Firm size  alternative specification (see later)INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  26. 26. Labour adjustment costs of incumbents: explanations baseline Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  27. 27. Labour adjustment costs of incumbents: explanations Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  28. 28. Labour adjustment costs of incumbents: explanations Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  29. 29. Labour adjustment costs of incumbents: explanations Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  30. 30. Labour adjustment costs of incumbents: explanations Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  31. 31. Labour adjustment costs of incumbents: explanations Bel. MNF turn ftc early ret. no unions unionsaBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50aBproxy -24.72 -166.36* -456.12***dBMNF 7.98** 7.85** 4.91 4.53* 8.31* 8.22**dBproxy 0.36 2.37 17.13***aWMNF -692.26*** -704.23** -691.96*** -564.39** -952.03 -498.99*aWproxy 285.21 -518.61** 179.24dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47dWproxy -8.30 5.79 5.23gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96gproxy 166.12 -276.51 -55.03Sargan 30.41 34.77 38.12 42.26 22.07 32.07Notes: 37553 observations and 5544 firms over the period 1998-2006.aB, aW dB, dW, g not reported.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  32. 32. Labour adjustment costs of incumbents: estimates Total adjustment costs for alternative specifications, ∆LW = +1700600500400300200100 0 base turn. ftc = 0.44 early ret. unions domestic firms multinational firmsINTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  33. 33. Labour adjustment costs of incumbents : the role of size Meghir, Ryan, Van Reenen (1996) specification for quadratic adjustment costs ( AC L it ;L it −1 ) = c ∆L it 2 ( 2 L it −1 ) L it −1 Cubic adjustment cost function without size AC(∆L ) B W aB B2 dB B3 aW W2 dW 3 it ; ∆L it = ∆L it + ∆L it + ∆L it + ∆LW + g∆LB ∆LW it it it 2 3 2 3 Cubic adjustment costs function à la Meghir et al. → L it-1-1, Lit-1-2AC ( ∆LB ; ∆LW ;L it −1 it it ) = aB 2 B 2 −1 ∆L it L it −1 + dB 3 B 3 −2 ∆L it L it −1 + aW 2 W 2 −1 ∆L it L it −1 + dW 3 it 3 ∆LW L− 2−1 + g∆LB ∆LWL−1−1 it it it it Generalised adjustment cost function → θ1, θB2 θB3, θW2, θW3AC(∆L ) B W aB B 2 θB 2 dB B 3 θB 3 aW W 2 θW 2 dW 3 W3 it ; ∆L it ; L it −1 = ∆L it L it −1 + ∆L it L it −1 + ∆L it L it −1 + ∆LW Lθ −1 + g∆LB ∆LW Lθ1 it it it it 2 3 2 3 it −1 + allowing for differences in aB, aW, dB, dW, g between MNFs and domestic firms INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  34. 34. Labour adjustment costs of incumbents : the role of size  Generalised adjustment cost function → θ1, θB2 θB3, θW2, θW3AC ( ∆LB ; ∆LW ;L it −1 it it ) = aB 2 B 2 θB 2 ∆L it L it −1 + dB 3 B 3 θB 3 ∆L it L it −1 + aW 2 W 2 θW 2 ∆L it L it −1 + dW 3 it 3 W3 ∆LW Lθ −1 + g∆LB ∆LW Lθ1 it it it it −1  Estimation of θj by random grid search.  Model and Moment Selection Criterion based on Hansen-J statistics  θ<0 → lower adjustment costs for larger firms, but the impact is limited  reduction in adjustment costs for ∆LB=1  -1.9% for domestic firms with L=10  0.001% for domestic firms with L=200 INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  35. 35. Labour adjustment costs of incumbents: estimates no control controlling Meghir for size for size specification aB 291.84*** 782.19*** 16333.13*** aBMNF -93.67 -14.42 205.19** dB -7.99** -12.70** -2862.81*** dBMNF 7.98** 11.17** -11550.40 aW 1191.58*** 1470.24*** 59616.48*** aWMNF -692.26*** -685.85*** 161.80 dW -20.98** -37.95*** -38557.80*** dWMNF 14.40 27.99** 179522.00 g -283.13*** -5700.69 -7415.29* gMNF 185.13 -8836.83* 2958.09 Sargan 30.41 24.68 30.32Notes: 37553 observations and 5544 firms over the period 1998-2006.Joint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  36. 36. Labour adjustment costs of incumbents: estimates no control controlling Meghir Total adjustment for size for size specification costs for ∆LW=1 700 aB 291.84*** 782.19*** 16333.13*** aBMNF -93.67 -14.42 205.19** 600 dB -7.99** -12.70** -2862.81*** 500 dB MNF 7.98** 11.17** -11550.40 aW 1191.58*** 1470.24*** 59616.48*** 400 aWMNF -692.26*** -685.85*** 161.80 300 dW -20.98** -37.95*** -38557.80*** 200 dWMNF 14.40 27.99** 179522.00 100 g -283.13*** -5700.69 -7415.29* gMNF 185.13 -8836.83* 2958.09 0 no control control for Sargan 30.41 24.68 30.32 for size size; L=200Notes: 37553 observations and 5544 firms over the period 1998-2006. domestic firms multinational firmsJoint estimation for blue-collar workers and white-collar workers by SGMM estimation.All equations include year and sector dummies.*** significant at the 1% level, ** significant at the 5% level, * significant at the 10% level.INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  37. 37. Conclusion1. MNFs are large emplyoment providers --- but ajust more and differently e.g. during 2008-2009  most employment losses in domestic firms were due to exits  most employment losses in MNFs due to employment cuts by incumbents2. Differences in exit probabilities  MNFs have a smaller unconditional probability of exit than domestic firms  Controlling for firm and sector-level characteristics, MNFs have a significantly higher probability of exit than domestic firms, but the difference is small (5.8 pp)3. Differences in labour adjustment costs  adjustment costs are smaller for MNFs, especially for white-collar workers  not (or only very partially )explained by flexible labour management practices or firm size  → possible interpretation stronger bargaining power vis-à-vis unions and governements  thanks to threat of closure/delocalisation?INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
  38. 38. THANK YOU FOR YOUR ATTENTION

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