Does Employment Behaviour in Multinational Affiliates Diverge from National Companies? a Counterfactual Analysis on the Italian Manufacturing Sector.

Saturday, June 25, 2016: 4:15 PM-5:45 PM
83 Dwinelle (Dwinelle Hall)
Mariachiara Barzotto, University of Birmingham, Birmingham, United Kingdom; Birmingham Business School, University of Birmingham, Birmingham, United Kingdom
Giancarlo Cor˛, Ca' Foscari University Venice, Venice, Italy
Ilaria Mariotti, Politecnico di Milano, milano, Italy
Marco Mutinelli, UniversitÓ di Brescia, Brescia, Italy
Countries are increasingly competing to attract inward foreign direct investments (henceforth, IFDIs) because of the potential benefits they bring about. In advances economies a specialised, skilled workforce emerges to be one a pivotal economic development asset to enhance local and regional innovation capabilities.

Within this framework, the paper uses two original data-bases to investigate how the employment behaviour of affiliates controlled by foreign multinational corporations differs from that of national companies. In our perspective, employment behaviour means the labour hoarding strategies during the economic crisis, and the skill intensity inside the firm. Moreover, our research sheds lights on what extent foreign investments sustain the regeneration of the host-country’s skilled human capital. The paper compares uni-national firms (NATs) – (firms that have never invested abroad, neither have been acquired by or merged with foreign MNEs, in the period of analysis) – to the affiliates of foreign MNE located in Veneto region (Northeast of Italy), through descriptive analyses and propensity score matching technique. Particular attention has been devoted to the firms’ skill composition.

The rationale behind the selection of Veneto NUTS2 region concerns its good internationalization performance, if compared to the national’s average, and its peculiarity to host about 20% of the Italian industrial districts in the Made in Italy sectors, on which the Italian industrial system and its competitiveness are grounded.

Results show that the affiliates of foreign MNEs are larger, operate in the high-technology sectors, hire high skilled workers, pay higher wages, and are less profitable. These findings confirm, from one side, the demand of high-tech operations in the country, on the other side, the investments in high-tech and R&D activities by foreign MNEs. The investment by foreign MNEs in high value added sectors is strictly related to the demand for high-skilled labour force, while the lower profitability might be related to: arbitrage in taxation, higher operating costs for facilities, higher exposure to price fluctuation of raw materials, and higher competition with large and productive companies which leads to minimize costs.

Besides, some evidence is provided on the extent to which FMNEs use the host-country’s high skilled human capital. The more intense use of local high skilled workers done by IFDIs might trigger concentration of specialised workers, which – in turn – might lead to virtuous processes of economic growth. Indeed, it fosters know-how circulation and knowledge spillovers enabling human capital regeneration and development.

The paper, therefore, contributes to the existing literature, which has mainly analysed the effects of inward FDIs in terms of productivity, technology, knowledge spill-overs, patent outputs and innovation, by focusing on the host-country labour market composition.

Six sections compose the work. The introduction is followed by the literature review on the effects of inward FDIs on the host-country, devoting particular attention to the local labour market composition. Section three presents a brief analysis of the internationalization degree of Italy and Veneto region. Section four focuses on data. Descriptive statistics and counterfactual analysis are described in section five, and six, respectively. Conclusions and policy implications follow.