The relationship between foreign and domestic employment of multinationals: evidence on the role of factor substitution

This paper examines the relationship between foreign and domestic employment of multinationals using foreign affiliate-level and parent-level data of Korean firms. We consider the log difference in labour intensity between foreign affiliates and their parents within multinationals for the estimation of the domestic employment effects. For multinationals whose foreign operations are more labour-intensive than their parents, foreign affiliate employment is negatively associated with parent production employment and positively with nonproduction employment. We also find that the negative (positive) relation between foreign affiliate employment and its parent production (nonproduction) employment occurs strongly for multinationals that operate in a labour-intensive manner in low-income countries and in a capital-intensive manner at home.