American Economic Review: Vol. 100 No. 5 (December 2010)


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Margins of Multinational Labor Substitution

Article Citation

Muendler, Marc-Andreas, and Sascha O. Becker. 2010. "Margins of Multinational Labor Substitution." American Economic Review, 100(5): 1999-2030.

DOI: 10.1257/aer.100.5.1999


Employment at a multinational enterprise (MNE) 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. Our integrated approach documents salient labor substitution for German manufacturing MNEs and removes bias. In Central and Eastern Europe, most employment responds at the extensive margin, while in Western Europe the extensive margin accounts for around two-thirds of employment shifts. At distant locations, MNEs respond to wages only at the extensive margin. (JEL F23, J23, J31, R32)

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Muendler, Marc-Andreas (U CA, San Diego and CESifo, Munich)
Becker, Sascha O. (U Warwick and Ifo, Munich)

JEL Classifications

F23: Multinational Firms; International Business
J23: Labor Demand
J31: Wage Level and Structure; Wage Differentials
R32: Other Production and Pricing Analysis

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