Headquarter services, skill intensity and labour demand elasticities in multinational firms

Using information on a panel of multinational firms operating in the United Kingdom from 1996 to 2005, we find that labour demand in domestic multinationals is less sensitive to own labour costs changes than in foreign multinationals. This difference in wage elasticity of labour demand persists even if we allow for a distinct labour elasticity in multinational firms according to their level of skill intensity or their intangible assets. This suggests that the provision of headquarter services in domestic multinational firms shields against strong fluctuations in labour demand. In terms of labour demand elasticity reduction, the estimated shielding role of headquarter services is about 40 percent.