Publication

Using information on a panel of multinational firms operating in the UK from 1996 to 2005, the authors find that labor demand in domestic multinationals is less sensitive to own labor costs changes than in foreign multinationals. This difference in wage elasticity of labor demand persists even if authors allow for a distinct labor 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 labor demand. In terms of labor demand elasticity reduction, the estimated shielding role of headquarter services is about 40 percent.