Working Paper No. 935

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

Published: October 25, 2012Pages: 47Keywords: Labor market institutions; Firm heterogeneity; Oligopoly; Platform-FDI; Horizontal-FDI, Micro dataJEL-codes: F23, J80, C20

Employment Protection and Multinational Enterprises: Theory and Evidence from Micro Data Pehr-Johan Norbäck, Jing-Lin Duanmu and Per Skedinger

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.

Pehr-Johan Norbäck


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Per Skedinger


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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