FDI and labour demand adjustment to factor prices and demand shocks in the UK manufacturing industry

This paper documents evidence of differential speed of labour demand adjustment among exporters, foreign multinationals (henceforth MNEs) and domestic non-exporting firms from the UK manufacturing industry. Our findings show that MNEs exhibit the fastest speed of employment adjustment to its optimal level, followed by exporters and then domestic nonexporters. Interestingly, the long-run adjustment of labour demand with respect to factor price and demand shocks is less pronounced amongst MNEs and exporters, consistent with the view that firms engaged in international commerce activities generate more skilled jobs that are more costly to dispose of. Moreover, exporting intensity also seems to matter; MNEs with limited export-market commitment are found to have more rigid labour adjustment in response to output and wages shocks in the long run. These findings may allay fears on the footloose nature of MNEs in the sense that jobs in MNEs (followed by exporters) are expected to be more secure on average in response to any shocks affecting long-run labour demand.