Multinational versus National Firms on Labour Adjustment Costs: A Structural Approach

This paper provides a different perspective on the firm-level empirical analysis of the relation between foreign ownership and labour demand adjustment in host countries. We estimate a dynamic structural model of employment on a sample of 8215 Belgian firms observed between 2003 and 2010 that permits to distinguish the ‘ownership status’ of firms. We consider a dynamic discrete choice model of a general specification of adjustment costs including convex, non-convex and “disruption of production” components. We use a method of simulated moments procedure to estimate the structural parameters. Our results indicate that multinational’s affiliates face lower convex and fixed adjustment costs but higher “disruption of production” adjustment costs than national firms.