The demand for skills and labour costs in partner countries

We analyse the consequences of trade integration in Europe (1995–2005) detecting how the labour costs in partner countries affect the domestic demand for high‐ and low‐skilled labour in ‘Old’ (EU‐15) and five ‘New’ EU member states. In general, independently of the skill level of workers, the results suggest complementarity between domestic and foreign labour. However, when we take into account the typology of sectors, the demand for the high skilled in low skill intensive sectors in ‘New’ EU members is boosted by the increase of the average labour cost in ‘Old’ EU members. Thus in low skill intensive sectors, the high skilled in ‘New’ member countries can substitute for employment in EU‐15 countries.     

The Real Effects of Transnational Activity upon Investment and Labour Demand within Japan's Machinery Industries

This paper attempts to estimate the real effects of transnational activity upon both investment and labour demand, within each of the five industries that comprise Japan's domestic machinery sector. The study uses a standard model of investment and labour demand, which is augmented to include foreign wages. It is argued that this approach is the most suitable for capturing the real effects of transnational activity, since foreign wages indicate the attractiveness of alternative sites for investment, production and employment. A simultaneous equations estimator is employed and, for each industry, there is evidence that both the behaviour of investment and labour demand are sensitive to foreign wage conditions. The results indicate the extent to which transnational activity has had a real effect upon Japan's domestic machinery sector.     

Picking “Lemons” or Picking “Cherries”? Domestic and Foreign Acquisitions in Norwegian Manufacturing*

We compare the performance in employment, wages and productivity for domestic plants acquired by new domestic and foreign owners. Prospective foreign owners pick large, high‐wage, high‐productivity plants, while new domestic owners choose average performers of above‐average size. Employment, labour productivity, and total factor productivity decline in domestic acquisition targets before acquisitions; only wages recover afterwards. Employment, wages and labour productivity increase after foreign acquisitions. The sample selection introduced by long‐term comparisons and a focus on unique events introduces a downward bias into the results for domestic acquisitions and an upward bias for the foreign acquisitions.     

The trade-off between real wages and employment in an open economy (Belgium)

The purpose of this paper is twofold. First, we discuss the nature and quantitative order of magnitude of the trade-off between real wages and employment in the small open economy Belgium. Second, we draw policy conclusions from our positive analysis, and compare income policies with alternative approaches to employment stimulation (including shorter working hours and currency depreciation).To study the trade-off between real wages and employment, we treat external balance as a binding constraint on demand management. An exogenous increase in real wages, affecting adversely the competitiveness of domestic producers on the export and import markets, impairs external balance. The impact of the wage increase on output and employment is evaluated through the reduction in domestic demand required to restore external balance.At the empirical level, we endeavour to evaluate separately the influence on exports and imports of domestic costs at unchanged capacity levels, and of capacity levels themselves. And we endeavour to evaluate the influence of real wages on capacity levels through scrapping and investment. All evaluations rely on the foreign trade equations of econometric models of the Belgian economy.The conclusions from our empirical investigation are first that estimates of the trade-off between real wages and employment in Belgium are subject to considerable imprecision; second that the short-run elasticity of employment with respect to real wages keeping capacity constant is probably quite small (like -0.2), and definitely less than unity in absolute value; third that the corresponding medium-run elasticity taking into account capacity adjustments is probably sizeable (like -2), and definitely larger than unity in absolute value; and fourth that exchange rate adjustments might not make too much difference, in either the short run or the medium run.Turning to a discussion of policy, we shall argue that these conclusions give support to a policy of constant real labour incomes, of comprehensive efforts to redistribute work through shorter working hours or related schemes, and of selective efforts to slow down capacity scrapping.     

Foreign acquisition,plant survival,and employment growth

Abstract This paper analyzes the effect of foreign acquisition on survival and employment growth of targets using data on Swedish manufacturing plants. We separate targeted plants into those within Swedish MNEs, Swedish exporting non‐MNEs, and purely domestic firms. The results, controlling for possible endogeneity of acquisition using IV and propensity score matching approaches suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter. The effect is robust to controlling for domestic acquisitions and differs between horizontal and vertical acquisitions. We find robust positive employment growth effects only for exporters and only if the takeover is vertical.     

Segmentation of Rural Labour Contracts: Some Further Evidence

The paper offers an explanation of labour tying commonly observed in seasonally agricultural economies. Employers may either hire regular labourers in the slack season to satisfy all or most of the labour demand in the high season but have underutilised labour in the low–demand season or rely on casual labourers only. Thus farmers hiring regular labour may also hire some casual labour as and when needed to minimise the hoarding costs of regular labour. Secondly, daily regular wages are usually lower than daily casual wages, but regular labourers usually get some wage–advance as well. Thus asset–poor workers have incentives to choose regular labour with interest–free wage advance because they face high marginal costs of credit in the segmented credit markets. The optimum hoarding costs decrease with increase in farm size, but increase with increase in spot market wages. However with improved availability of alternative employment opportunities and/or cheaper credit facilities to the asset–poor labourers, the supply of regular labour is likely to decline. Empirical evidence from the ICRISAT villages in south India seems to be consistent with the primary propositions of the model.     

Unemployment,long-term employment relations and the determination of unit labour cost growth in US manufacturing industries

This paper examines the effect that unemployment and long-term employment relations exert on the determination of unit labour costs. The paper proceeds in three sections. Section one analyses the relationship between labour market conditions and unit labour costs by developping a simple model of a firm that relies upon dismissal threats to elicit work effort. The comparative static properties of this model suggest that a tightening of labour markets may result in an increase in unit labour costs. In addition, it is argued that the labour market disequilibrium that occurs at full employment levels of unemployment will likely result in an increase in the growth rate of unit labour costs. The second section of the paper reviews diverse theories of long-term employment relations (LTERs), each of which suggest that the presence of LTERs ought to reduce the effect that labour market conditions exert on unit labour costs. The third section of the paper presents empirical estimates of the effect unemployment and LTERs exert on unit labour costs. The central empirical findings can be briefly summarized. First, movements towards full employment increase the growth rate of wages, reduce the growth rate of labour productivity and increase the growth rate of unit labour costs. Secondly, where long-term employment relations are prevalent, the effect of unemployment on wage, labour productivity, and unit labour cost growth is diminished. The paper concludes by discussing the implications these findings have for effort regulation models and the macroeconomic foundations of microeconomic labour market structures     

An input-output approach to the estimation of employment requirements in Europe

This study reports the results of an attempt to analyse the employment requirements per one million dollars of final demand on the basis of an input-output model, in which the standard technology matrix is partitioned into domestic and import input coefficient matrices for twelve European countries. International comparisons of employment requirements indicate that the labour productivity is higher for high income countries while employment requirements per one million dollars of final demand is less closely associated with the size of the country. Our results demonstrate that the total employment requirements estimated on the basis of the total input coefficients matrix or the domestic coefficients matrix retain the same ordinal ranking of the sectors. For developing countries, where the data are not available for domestic and import coefficients matrix separately, the methodology of estimating employment requirements (per unit of final demand) through total coefficients matrix may be adopted since our experience indicates that ranking of the sectors in terms of labour productivity is not altered between two approaches for twelve European countries.     

Foreign competition and social efficiency of entry

We consider social efficiency of firm-entry in the presence of foreign competition. If the labour markets are competitive, entry is insufficient for the domestic country if the transportation cost is low and the marginal costs of the domestic firms are sufficiently higher than the marginal cost of the foreign firm. In the presence of a domestic labour union, entry is always socially insufficient for the domestic country. Hence, the anti-competitive entry-regulation policy may not be justified in an industry facing foreign competition, and it may depend on the transportation cost, the marginal cost difference between the firms and the domestic labour market structure.     

A DYNAMIC MODEL OF TOURISM, EMPLOYMENT AND WELFARE: THE CASE OF HONG KONG

Abstract.  The present paper uses a dynamic open-economy model with wage indexation to examine the impact of tourism on employment and welfare. Both short-run and long-run situations are analysed. It is well known that tourism converts non-traded goods into tradable goods. An increase in the demand for a non-traded good raises its relative price, which results in an expansion of the non-traded sector at the expense of the traded goods sector. This output shift raises labour employment in the short run. However, in the long run, the higher relative price leads to higher wages, resulting in a negative impact on labour employment. If the output effect is dominant, the expansion in tourism raises employment and welfare. However, under realistic conditions tourism may lower both labour employment and welfare due to rising costs. These results are demonstrated by simulating a dynamic model for the case of Hong Kong.     

Creating low skilled jobs by subsidizing market-contracted household work

The paper analyses the determinants of household work contracted in the German shadow economy. The German socio-economic household panel, which enumerates casual domestic employment, is used to estimate the demand for such household work. The regressors include regional wage rates, household income and several control variables for household composition. It is found that the demand for household work in the shadow economy is very income elastic. This suggests that targeted wage subsidies, linked to household work agencies, would be very effective in raising the legal demand for domestic help. A wage subsidy of 50% of wage costs could thus establish up to 500?000 new jobs for previously unemployed or non-working low skilled workers. The net fiscal costs of such a scheme are about 6.200 Euro per full-time job. In addition, society benefits from more law enforcement and from a raised female labour supply, especially by highly qualified mothers.     

Swedish Multinationals and Competition from High- and Low-Wage Locations

This study uses data on Swedish multinationals to estimate cross-elasticities of labor demand in different locations. With a vertical decomposition of the firm's activities, whether there is substitution or complementarity between employment in different parts of the firm will depend on whether wage changes lead to a relocation of activities or simply to changes in marginal costs and/or demand for inputs in other parts of the firms. It is found that there is some evidence of a substitutionary relationship between employment in the Swedish parts of the firms and employment in other high-income locations, but no evidence of substitution stemming from employment in low-income locations.     

Localised Technological Progress And Intra-Sectoral Structures Of Employment

In this paper we put forward a model that explains a firm's employment growth with the degree of technological efficiency and labour costs. To measure efficiency, we use a non-parametric linear programming method. DEA. The results of empirical analysis of 450 firms in 12 manufacturing sectors confirm that innovative firms experience stronger employment growth. Because the demand growth effect of technological leadership outweighs the factor saving effect, firms which m technological leaders are in most cases the creators of jobs. Technologically backward firms, on the other hand, have few options to compensate their demand loss probably caused by deteriorating competitiveness. Consequently, their employment growth is relatively weak. The employment growth additionally depends on the type of factor combination, i.e. the technological trajectory chosen by an individual firm. The trajectory's effects vary significantly across industries. The effect of labour costs is generally negative. However, technologically leading industries are. less sensitive to increases in labour costs than nature industries.     

Multinationals,cross‐border acquisitions and wage dispersion

Abstract We examine the impact of cross‐border acquisitions on intra‐firm wage dispersion using a detailed Swedish linked employer‐employee data set including data on all firms and about 50% of the Swedish labour force with information on job‐tasks and education. Foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross‐border acquisitions. Hence, it is the acquisition itself rather than foreign ownership that increases wage dispersion. The positive wage effect is concentrated to CEOs and other managers, whereas other groups are either negatively affected or not affected at all.     

Employment security and the demand for labour in Europe

This paper analyses the impact of employment security on labour demand. The approach taken is to estimate a dynamic labour demand function that allows for the effect of changes in a measure of employment security derived from surveys of employers. The estimation uses panel data on employment (both in terms of the total number of employees and total hours worked) for seven European countries for the period 1981–1994. The results suggest that employment security can have significant effects in slowing down the dynamic adjustment of labour demand. The paper also finds some (less robust) evidence that employment security can increase the long run level of labour demand in terms of total hours, but not the number of persons employed.     

HIGH-SKILLED MIGRATION AND THE EXERTION OF EFFORT BY THE LOCAL POPULATION

The optimal design of immigration policy is a topical issue, both in the policy debate and the economic literature. In this paper, we present empirical evidence from a firm level dataset collected in 2000 on the demand for high-skilled workers, including foreign workers, in Europe and its determinants. Our major findings are that the fraction of high-skilled workers recruited from the international labour market is very small, and that foreign and domestic workers are very similar in terms of their formal education (measured by specialization subject) and their job characteristics. We suggest an efficiency wage model to explain why firms recruit foreign workers in small numbers, and why they are willing to pay immigrants the same wage as local workers, whilst at the same time also paying for their moving costs, despite the similar human capital profile of immigrants to domestic workers.     

The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction‐level data

Using detailed micro‐level data from 1977 to 1994, we analyze the impact of employment protection measures adopted across US states on the number and the value of new inbound foreign direct investment (FDI) transactions completed by foreign‐owned companies. Our findings point to a robust negative association between the implementation of employment protection laws and both the extensive and the intensive margins of FDI in the US. When states adopt regulations that increase employers’ firing costs, FDI transactions by foreign multinational companies become less frequent and decrease in value, with stronger negative impacts in more labour‐intensive industries. There is also some evidence of diversion and spillover effects from the adoption of these measures by neighbouring states.     

What are the determinants of hiring? The importance of product market demand and search frictions

In this article, we study the importance of product market demand and search frictions for hiring. We use a search-matching model with imperfect competition in the product market to derive an equation for total hiring in a local labour market, and estimate it on Swedish panel data. If product markets are imperfectly competitive, product demand shocks should have a direct effect on employment for given levels of prices and wages. Our main finding is that product demand has such a direct effect on hiring. This highlights the importance of taking imperfect competition in the product market into account in studies of employment dynamics and hiring. We also find that, for given levels of prices, wages, and product demand, the number of unemployed workers in a local labour market has a positive effect on hiring, suggesting that search frictions matter. Quantitatively, product demand shocks seem to be more important for understanding the variation in hiring than shocks to the number of unemployed workers.     

Shocks and rigidities as determinants of CEE labour markets’ performance

In this article, the impact of real wage, productivity, labour demand and supply shocks on eight Central and Eastern European (CEE) economies from 1996–2007 is analysed with a panel structural vector error correction model. A set of long‐run restrictions derived from the dynamic stochastic general equilibrium (DSGE) model is used to identify structural shocks, and fluctuations in foreign demand are controlled for. We find that the propagation of shocks on CEE labour markets resembles that found for OECD countries. Labour demand shocks emerge as the main determinant of employment and unemployment variability in the short‐to‐medium run, but wage rigidities were equally important for observed labour market performance, especially in Poland, Czech Republic and Lithuania. We associate these rigidities with collective bargaining, minimum wage, active labour market policies and employment protection legislation.