Firm Dynamics and Employment Adjustment: Multinational vs Domestic Firms

The economic and financial crisis has meant sizeable employment losses that resulted from different adjustment mechanisms in domestic firms and multinational companies. This may be due to either production plant closures or downsizing by firms that remain active. This paper evaluates the importance of both phenomena for multinational and domestic firms in Belgium over the period preceding the crisis (1997-2008), using a firm-level dataset. Our results reveal that multinational enterprises tend to leave the local market more frequently than domestic firms with comparable firm and sector characteristics. Further, multinational incumbents face employment adjustment costs for white-collar workers that are around half of those borne by domestic firms. In sum, our findings suggest that multinational firms are more flexible in terms of plant location as well as in terms of employment adjustment. However, before the crisis, foreign multinationals created more jobs on average than other types of firms. JEL Classification: F23, J23.