Firm dynamics and employment
adjustment: the role of multinationals
P. 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 not necessarily reflect the views of the National Bank of Belgium.
Eesti Pank seminar, Tallinn, January 23 2013
Introduction: the role of multinational firms (MNFs)
Importance of MNFs for Belgium
MNFs are large employment providers ...
...
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)
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
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic firms
employment(x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123 average per firm 9 9 9 8 7 7 7 7 7 7 8 8
MNFs
employment(x1000) 508 522 539 714 707 713 710 689 706 709 688 657 average per firm 261 270 266 267 252 238 239 249 264 270 273 267
Introduction: the role of multinational firms (MNFs)
Importance of MNFs for Belgium
MNFs are large employment providers ...
...
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)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic firms
employment(x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123 average per firm 9 9 9 8 7 7 7 7 7 7 8 8
MNFs
employment(x1000) 508 522 539 714 707 713 710 689 706 709 688 657 average 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
Introduction: the role of multinational firms (MNFs)
Importance of MNFs for Belgium
MNFs are large employment providers ...
...
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)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic firms
employment (x1000) 1087 1116 1137 995 983 967 987 1030 1051 1088 1118 1123 average per firm 9 9 9 8 7 7 7 7 7 7 8 8
MNFs
employment (x1000) 508 522 539 714 707 713 710 689 706 709 688 657 average 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
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 costs
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
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
Employment dynamics during the crisis
(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic 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 5.51
MNFs ∆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
Employment dynamics during the crisis
more domestic firms have exited in 2008
(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic 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 5.51
MNFs ∆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
Employment dynamics during the crisis
more domestic firms have exited in 2008
incumbent MNFs start downsizing in 2008
(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic 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 5.51
MNFs ∆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
Employment dynamics during the crisis
more domestic firms have exited in 2008
incumbent MNFs start downsizing in 2008
domestic incumbents start downsizing in 2009, and exits remain substantial
(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic 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 5.51
MNFs ∆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
Employment dynamics during the crisis
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
(in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Domestic 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 5.51
MNFs ∆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
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 account
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
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
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 competition
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
sunkit = (PIitIit - PI
itIleasedit) + (1-δit)(1-γit).(PK
it-1Kit-1 - PKit-1Kleased
it-1)
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 dummies
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
The probability of firm exit
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.
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
MNFs have a higher (unconditional) probability of exit than domestic firms
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
The probability of firm exit
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.
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
• conditional on firm an sector char., MNFs are more likely to exit (5.8 pp)
• sunk costs act as barriers to exit
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
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 power
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
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 firms
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
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 markup
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
Labour adjustment costs of incumbents: estimation
Euler equation for worker-type j
Differences between domestic firms and MNFs
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) procedure
( ) [ ]( )( ) [ ]( )( ) [ ]( )k
titkititMNF
jtit
jitit
jMNF
j
jtit
jitit
jMNF
jjitj
it
itjst
LELMNFggLELMNFdd
LELMNFaaWLQP
1,
21,
2
1,
+
+
+
∆−∆++∆−∆+
+∆−∆+=−
ββ
βµ
α
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
Labour adjustment costs of incumbents: Estimates of production function coefficients
αK/µ αB/µ αW/µ
Food and textile 0.178 (0.011)
0.424 (0.015)
0.388 (0.016)
Wood, paper, chemicals, metal and non metal products, machinery 0.161 (0.006)
0.358 (0.009)
0.437 (0.009)
Equipment and recycling 0.138 (0.011)
0.354 (0.013)
0.433 (0.018)
Energy and construction 0.106 (0.007)
0.502 (0.007)
0.338 (0.006)
Trade and hotels and restaurants 0.126 (0.005)
0.176 (0.005)
0.561 (0.008)
Communication and financial intermediation 0.163 (0.005)
0.268 (0.006)
0.361 (0.007)
Real estate and business activities 0.179 (0.013)
0.071 (0.018)
0.612 (0.034)
Note: Estimates based on the 1997-2005 period; 58594 observations and 8688 firms; Bootstrap-standard errors in brackets.
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
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 30.41
Notes: 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
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 30.41
Notes: 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
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 30.41
Notes: 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
0
100
200
300
400
500
600
700
domestic firms multinational firms
∆LB = +1 ∆LW = 0 ∆LB = 0 ∆LW = +1
Total adjustment costs for a net employment increase of 1
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
Higher bargaining power wrt unions
sample split according to compulsory union representation at the firm level (employees>=50)
Firm size
alternative specification (see later)
( ) [ ]( )( ) [ ]( )( ) [ ]( )k
titkititproxyitMNF
jtit
jitit
jproxyit
jMNF
j
jtit
jitit
jproxyit
jMNF
jjitj
it
itjst
LELproxygMNFggLELproxydMNFdd
LELproxyaMNFaaWLQP
1,
21,
2
1,
+
+
+
∆−∆+++∆−∆++
+∆−∆++=−
ββ
βµ
α
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
Labour adjustment costs of incumbents: explanations
baseline Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: explanations
Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: explanations
Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: explanations
Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: explanations
Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: explanations
Bel. MNF turn ftc early ret. no unions unions
aBMNF -93.67 -96.21 -12.17 48.54 248.15 -64.50
aBproxy -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** 179.24
dWMNF 14.40 12.07 14.95* 7.76 -54.76** -11.47
dWproxy -8.30 5.79 5.23
gMNF 185.13 159.24 223.70** 257.46*** -454.82 182.96
gproxy 166.12 -276.51 -55.03
Sargan 30.41 34.77 38.12 42.26 22.07 32.07
Notes: 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
Labour adjustment costs of incumbents: estimates
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
0
100
200
300
400
500
600
700
domestic firms multinational firms
base turn. ftc = 0.44 early ret. unions
Total adjustment costs for alternative specifications, ∆LW = +1
Labour adjustment costs of incumbents : the role of size
Meghir, Ryan, Van Reenen (1996) specification for quadratic adjustment costs
Cubic adjustment cost function without size
Cubic adjustment costs function à la Meghir et al. → L it-1-1, Lit-1
-2
Generalised adjustment cost function → θ1, θB2 θB3, θW2, θW3
+ allowing for differences in aB, aW, dB, dW, g between MNFs and domestic firms
( ) 13232
113
12
13
12
1 3232θ
−
θ−
θ−
θ−
θ−− ∆∆+∆+∆+∆+∆=∆∆
itWit
Bitit
Wit
W
itWit
W
itBit
B
itBit
B
itWit
Bit LLLgLLdLLaLLdLLaL;L;LAC
WWBB
INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
( ) 12
11 2 −
−−
∆= it
it
ititit L)
LL
(cL;LAC
( ) 11
21
311
221
311
21 3232
−−
−−
−−
−−
−−− ∆∆+∆+∆+∆+∆=∆∆ it
Wit
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itWit
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( ) Wit
Bit
Wit
WWit
WBit
BBit
BWit
Bit LLgLdLaLdLaL;LAC ∆∆+∆+∆+∆+∆=∆∆
3232
3232
Labour adjustment costs of incumbents : the role of size
Generalised adjustment cost function → θ1, θB2 θB3, θW2, θW3
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
( ) 13232
113
12
13
12
1 3232θ
−
θ−
θ−
θ−
θ−− ∆∆+∆+∆+∆+∆=∆∆
itWit
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INTRODUCTION EMPLOYMENT DYNAMICS PROBABILITY OF EXIT LABOUR ADJUSTMENT COSTS CONCLUSION
Labour adjustment costs of incumbents: estimates no control
for size controlling
for size Meghir
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 30.32
Notes: 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
Labour adjustment costs of incumbents: estimates no control
for size controlling
for size Meghir
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 30.32
Notes: 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
0
100
200
300
400
500
600
700
domestic firms multinational firms
no control for size
control for size; L=200
Total adjustment costs for ∆LW=1
Conclusion
1. 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 incumbents
2. 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
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