Skip to main content

Advertisement

SpringerLink
Log in

Foreign-owned plants and job security

  • Original Paper
  • Published:
Review of World Economics Aims and scope Submit manuscript

Abstract

We investigate the hypothesis that workers in foreign-owned plants face greater job insecurity than those in domestic-owned plants. Using linked employer-employee data from Germany, we examine whether foreign-owned plants are more likely to close down, and whether workers in foreign-owned plants face higher separation rates. Our results show that, in Germany, foreign-owned plants per se are not associated with greater job insecurity, either through plant exit or worker separation. However, small, non-exporting and privately owned foreign-owned plants do face a higher risk of closure than equivalent domestic plants.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. The estimated coefficient reported by Görg and Strobl (2003, Table 2) is 0.231 with a standard error of 0.059. However, the ownership variable is also interacted with a number of other characteristics, and some of these interactions are highly significant. The average effect of foreign ownership on the hazard rate may therefore be much smaller than 0.231.

  2. The authors compute hazard ratios of 2.56 for the electronics sector and 10 for the food sector. These estimates are an order of magnitude greater than estimates from cross-sectional comparisons.

  3. A detailed description of the IAB Establishment Panel can be found in Fischer et al. (2009).

  4. The relevant question is: “Is the establishment mainly or solely in: (a) Western German ownership (b) Eastern German ownership (c) Foreign ownership (d) Public ownership (e) No single owner which holds majority?” Our analysis considers only plants under (a)–(c).

  5. For example, there are only 36 plants who were domestic-owned in 2000 and foreign-owned in 2004.

  6. The interview outcome essentially takes three values: (1) “Same plant as last year” (2) “Plant still exists but has left panel” (3) “Plant has closed”.

  7. The age of a plant is calculated by finding the year in which the plant first appears in the Beschäftigtenstatistik. However, the earliest year in the Beschäftigtenstatistik is 1975, and so the age of some plants is right censored.

  8. It is left truncation rather than left censoring because we observe the age of plants as they enter the sample (Wooldridge 2002, Section 20.3.3).

  9. This is closely linked to their larger size: see Addison et al. (2001) for a description and analysis of German works councils.

  10. See Schank et al. (2007) for a discussion of exporting and size amongst German establishments.

  11. The profitability variable comes from the question “How was the profit situation in the last business year?”.

  12. Andrews et al. (2010) analyse the wage effects of foreign ownership using these data.

  13. This is 1,394 closures divided by 31,790 plant-years at risk. See Table 1. Throughout, all plant level analyses are based on 31,790 plant-years and 8,943 plants.

  14. This difference in log-hazard rates between domestic-owned and foreign-owned plants can be interpreted as an approximate percentage difference in the usual way, measured in log-points. The exact percentage difference is given by \(100 (\exp(\beta)-1)\).

  15. Note that even in this case we should not control for any genuine additional productivity which arises from the acquisition.

  16. See Addison et al. (2004) for evidence that works councils and plant closure are positively associated.

  17. 100(e −1.192 − 1) =  −70%; 100(e −2.304 − 1) =  −90%.

  18. It is interesting to note that some 34% of foreign plants report that they are not part of a larger organisation (Table 2), which suggests that they may not in fact be part of a multinational. This is another reason for restricting the sample.

  19. Helpman et al. (2004) construct a model in which, amongst firms which serve foreign markets, only the most productive engage in foreign direct investment. This is confirmed empirically for the United States. Wagner (2006) also confirms this empirically using a sample of German firms.

  20. In fact, the much greater number of observations at the worker level implies that we do not have to group the hazard as we did for the plant closure hazards. We have done this purely for comparability.

  21. Estimated coefficient is 0.039 with a standard error of 0.066.

  22. We experimented with different definitions of a ‘contracting’ plant, ranging from 0 to 10%; 5% is where the foreign ownership effect is the biggest. We also checked whether expand/contract dummies affects other controls and have interacted it with plant-size.

References

  • Abowd, J., Corbel, P., & Kramarz, F. (1999). The entry and exit of workers and the growth of employment: An analysis of French establishments. The Review of Economics and Statistics, 81(2), 170–187.

    Article  Google Scholar 

  • Addison, J., Bellmann, L., & Kölling, A. (2004). Works councils and plant closings in Germany. British Journal of Industrial Relations, 42(1), 125–148.

    Article  Google Scholar 

  • Addison, J., Schnabel, C., & Wagner, J. (2001). Works councils in Germany: Their effects on establishment performance. Oxford Economic Papers, 53(4), 659–694.

    Article  Google Scholar 

  • Alvarez, R., & Görg, H. (2009). Multinationals and plant exit: Evidence from Chile. International Review of Economics and Finance, 18(1), 45–51.

    Article  Google Scholar 

  • Anderson, P., & Meyer, B. (1994). The extent and consequences of job turnover. Brookings Papers: Microeconomics, 1994, 177–248.

  • Andrews, M., Bellmann, L., Schank, T., & Upward, R. (2010). The takeover and selection effects of foreign ownership in Germany: An analysis using linked worker-firm data. Review of World Economics/Weltwirtschaftliches Archiv, 145(2), 293–317.

    Article  Google Scholar 

  • Audretsch, D., & Mahmood, T. (1995). New firm survival: New results using a hazard function. The Review of Economics and Statistics, 77(1), 97–103.

    Article  Google Scholar 

  • Baggs, J. (2005). Firm survival and exit in response to trade liberalization. Canadian Journal of Economics, 38(4), 1364–1383.

    Article  Google Scholar 

  • Bandick, R. (2010). Multinationals and plant survival. Review of World Economics/Weltwirtschaftliches Archiv, 146(4), 609–634.

    Article  Google Scholar 

  • Becker, G. (1962). Investment in human capital: A theoretical analysis. Journal of Political Economy, 70(Sup.), 9–49.

    Article  Google Scholar 

  • Bender, S., Haas, A., & Klose, C. (2000). The IAB employment subsample 1975–1999. Schmollers Jahrbuch, 120(4), 649–662.

    Google Scholar 

  • Bernard, A., & Jensen, J. (2007). Firm structure, multinationals, and manufacturing plant deaths. The Review of Economics and Statistics, 89(2), 193–204.

    Article  Google Scholar 

  • Bernard, A., & Sjöholm, F. (2003). Foreign owners and plant survival (NBER working paper 10039). Cambridge, MA: National Bureau of Economic Research.

  • Cameron, C., & Trivedi, P. (2005). Microeconometrics: Methods and applications. Cambridge: Cambridge University Press.

    Google Scholar 

  • Deaton, A. (2000). The analysis of household surveys: A microeconometric approach to development policy. Baltimore: Johns Hopkins University Press.

    Google Scholar 

  • Disney, R., Haskel, J., & Heden, Y. (2003). Entry, exit and establishment survival in UK manufacturing. Journal of Industrial Economics, LI(1), 91–112.

    Article  Google Scholar 

  • Dunne, T., Roberts, M., & Samuelson, L. (1988). Patterns of firm entry and exit in US manufacturing industries. RAND Journal of Economics, 19(4), 495–515.

    Article  Google Scholar 

  • Dunne, T., Roberts, M., & Samuelson, L. (1989). The growth and failure of US manufacturing plants. Quarterly Journal of Economics, 104(4), 671–698.

    Article  Google Scholar 

  • Fabbri, F., Haskel, J., & Slaughter, J. (2003). Does nationality of ownership matter for labor demands? Journal of the European Economic Association, 1(2), 698–707.

    Article  Google Scholar 

  • Fang, T., & Heywood, J. (2006). Unionization and plant closure in Canada. Canadian Journal of Economics, 39(4), 1173–1194.

    Article  Google Scholar 

  • Fischer, G., Janik, F., Müller, D., & Schmucker, A. (2009). The IAB Establishment Panel—things users should know. Schmollers Jahrbuch, 129(1), 133–148.

    Article  Google Scholar 

  • Girma, S., & Görg, H. (2004). Blessing or curse? Domestic plants’ survival and employment prospects after foreign acquisitions. Applied Economics Quarterly, 50(1), 89–110.

    Google Scholar 

  • Glass, A., & Saggi, K. (2002). Multinational firms and technology transfer. Scandinavian Journal of Economics, 104(4), 495–513.

    Article  Google Scholar 

  • Görg, H., & Strobl, E. (2003). Footloose multinationals. The Manchester School, 71(1), 1–19.

    Article  Google Scholar 

  • Greenaway, D., & Kneller, R. (2007). Firm heterogeneity, exporting and foreign direct investment. The Economic Journal, 117, F134–F161.

    Article  Google Scholar 

  • Guo, G. (1993). Event-history analysis for left-truncated data. In: P. Marsden (Ed.), Sociological methodology (pp. 217–243). Cambridge, MA: Blackwell.

    Google Scholar 

  • Hakkala, K., Heyman, F., & Sjöholm, F. (2010). Multinationals, skills and wage elasticities. Review of World Economics/Weltwirtschaftliches Archiv, 146(2), 263–280.

    Article  Google Scholar 

  • Harhoff, D., Stahl, K., & Woywode, M. (1998). Legal form, growth and exit of West German firms—empirical results for manufacturing. Journal of Industrial Economics, 46(4), 453–488.

    Article  Google Scholar 

  • Helpman, E., Melitz, M., & Yeaple, S. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94(1), 300–316.

    Article  Google Scholar 

  • Hijzen, A., Martins, P., Schank, T., & Upward, R. (2010). Do foreign-owned firms provide better working conditions than their domestic counterparts? A comparative analysis. Mimeo: University of Nottingham.

    Google Scholar 

  • Hopenhayn, H. (1992). Entry, exit, and firm dynamics in long run equilibrium. Econometrica, 60(5), 1127–1150.

    Article  Google Scholar 

  • Jenkins, S. (2005). Survival analysis. Monograph, University of Essex.

  • Jovanovic, B. (1979). Job matching and the theory of turnover. Journal of Political Economy, 87(5), 972–990.

    Article  Google Scholar 

  • Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50(3), 649–670.

    Article  Google Scholar 

  • Mata, J., & Portugal, P. (1994). Life duration of new firms. Journal of Industrial Economics, XLII(3), 227–245.

    Article  Google Scholar 

  • Navaretti, G., Turrini, A., & Checchi, D. (2003). Adjusting labor demand: Multinational versus national firms: A cross-European analysis. Journal of the European Economic Association, 1(2/3), 698–707.

    Google Scholar 

  • Pesola, H. (2008). Labour market transitions following foreign acquisitions. Mimeo, Department of Economics, Helsinki School of Economics.

  • Schank, T., Schnabel, C., & Wagner, J. (2007). Do exporters really pay higher wages? First evidence from linked employer-employee data. Journal of International Economics, 72(1), 52–74.

    Article  Google Scholar 

  • Scheve, K., & Slaughter, M. (2004). Economic insecurity and the globalization of production. American Journal of Political Science, 48(4), 662–674.

    Article  Google Scholar 

  • Wagner, J. (1994). The post-entry performance of new small firms in German manufacturing industries. Journal of Industrial Economics, 42(2), 141–154.

    Article  Google Scholar 

  • Wagner, J. (2006). Export intensity and plant characteristics: What can we learn from quantile regression? Review of World Economics/Weltwirtschaftliches Archiv, 142(1), 195–203.

    Article  Google Scholar 

  • Wooldridge, J. (2002). The econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.

    Google Scholar 

Download references

Acknowledgments

The authors thank the Economic and Social Research Council (under grant number RES-000-22-1034) and the Leverhulme Centre for Research on Globalisation and Economic Policy (under grant number F/00 114/AM) for financialsop assistance. We are grateful for the comments of an anonymous referee, and we also thank the participants of the “Labour Markets, Trade and FDI” workshop at Istanbul Technical University (2009), the Comparative Analysis of Enterprise Micro Data (CAED) conference in Budapest (2008), a workshop on Foreign Trade and Globalisation sponsored by the German Council for Social and Economic Data (RatSWD), and the 2008 WPEG conference in Sheffield for their comments. Stephen Jenkins also helped with clarifying conversations concerning unobserved heterogeneity and left truncated discrete duration models. The data used in this paper are confidential but not exclusive. They are available for non-commercial research by visiting the research data centre of the German Federal Employment Agency at the IAB in Nürnberg, Germany. See http://www.fdz.iab.de for more information. Researchers interested in replications or extensions of our work may contact richard.upward@nottingham.ac.uk.

Author information

Authors and Affiliations

  1. University of Manchester, Manchester, UK

    Martyn Andrews

  2. Institut für Arbeitsmarkt-und Berufsforschung, Friedrich-Alexander-Universität Erlangen-Nürnberg, Nürnberg, Germany

    Lutz Bellmann

  3. Johannes Gutenberg Universität Mainz, Mainz, Germany

    Thorsten Schank

  4. University of Nottingham, Nottingham, UK

    Richard Upward

Authors
  1. Martyn Andrews
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Lutz Bellmann
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Thorsten Schank
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Richard Upward
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Richard Upward.

About this article

Cite this article

Andrews, M., Bellmann, L., Schank, T. et al. Foreign-owned plants and job security. Rev World Econ 148, 89–117 (2012). https://doi.org/10.1007/s10290-011-0110-1

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10290-011-0110-1

Keywords

JEL Classification

Search

Navigation