اندازه و محل سرمایه گذاری مستقیم خارجی (FDI) : آیا حفاظت از استخدام، موضوع قانونی است ؟

This paper investigates the effect of Employment Protection Legislations for regular and temporary employment on Japanese firm-level FDI into Western Europe during the late 1980s and late 1990s. We find employment protection does matter in the location choice of Japanese investors and it has an adverse effect on FDI-related employment size. There is a clear direct impact from legislation on regular employment while the impact of the legislation on temporary employment is much weaker. Moreover, only the regulation of temporary work agencies matters and not that of fixed-term contracts. In the 1990s, most European countries focused on increasing flexibility for temporary employment while sometimes reinforcing protection on regular employment, a policy which had no clear beneficial impact in terms of attracting job creating foreign direct investment.

This paper investigates how countries' labor market institutions affect the decisions by multinational enterprises on where to locate their foreign direct investments (FDI) across otherwise quite similar economies. Specifically, we analyze the role of employment protection legislation on Japanese multinational firms' decision to locate an affiliate in Western Europe. The question is: do differences in labor market flexibility influence the geographical distribution of the demand for labor by FDI when other “standard” location choice factors are taken into account? The analytical framework rests upon two different streams of literature, that on FDI location choice and that on the impact of institutions on the demand for labor. The extensive FDI location decision literature traditionally includes host-specific labor costs as a measure of location attractiveness. These studies typically focus on explicit wage-related labor costs and yield mixed conclusions. This is in part the case because wage costs do not necessarily represent adequately overall employment costs.1 Recently studies have begun to examine the role of labor market policies (implicit employment costs) in FDI location decision. Unfortunately, none of them examines how employment generated by foreign investment is affected by such policies. The role of labor market institutions has been studied extensively in the context of the demand for labor by existing firms in the 1980s. Recently the topic attracted attention again with the rising interest in the link between institutions and economic performance in general and the labor market in particular (Botero et al., 2004). Nevertheless, while theories about the short- and long-term impact of cost-increasing employment legislation (EPL) predict an adverse effect on employment, empirical studies remain divided as to its significance and magnitude. By combining these streams of literatures this paper addresses two shortcomings of previous studies. First, empirical results about the impact of employment protection are inconclusive partly because only existing firms are investigated although much job creation and destruction arises from firms' entry and exit. By looking at employment related to FDI location choices, and in particular greenfield investments, we capture the firm's entry decision among several alternative countries. Second, this study fills a gap in the FDI location literature by considering how non-wage costs (i.e., fixed labor costs) embodied in labor institutions affect location choice. The study considers some 1600 new investments, covering about 140,000 workers, by Japanese firms into all affiliate industries in 15 Western European countries in 1985–1990 and 1995–2000. Recently developed indexes in OECD (1999) for protection in regular and temporary employment are used in addition to traditional host-specific FDI location factors. We find that employment protection does matter in the location and employment-size decision by Japanese investors, with protection for regular employment particularly harmful relative to protection for temporary employment. Yet, in the 1990s, European countries primarily liberalized temporary work and, while temporary work agencies may have positively influenced employment in some selected sectors, there has been little significant overall impact on job creation.2 Hence, European countries' focus on liberalizing temporary employment has not been successful in attracting employment-generating FDI from Japanese multinationals. The paper proceeds as follows. Section 2 surveys the relevant EPL and FDI literatures. Section 3 outlines the FDI and EPL data used in the study, while Section 4 provides the estimation results. Section 5 concludes.

This paper examines the effects of employment protection legislations on the location and employment size of Japanese foreign affiliates. It contributes to the employment protection literature by studying the impact of EPL on entry decision and not just the dynamics of existing firms. Moreover, it analyses the sectoral impact of changes legislation for employment protection for different types of workers and across sectors. It also differs from previous FDI location studies by its focus on labor market institutions rather than just compensation costs. We find that employment protection legislation for regular employment has a clear negative impact on Japanese multinationals' investment location and size decisions while protection for temporary employment has little effect. Moreover, regular employment is particularly sensitive to EPL in fast growing and fast changing sectors such as transportation/communication and financial services. Between the late 1980s and the late 1990s, most European countries relaxed quite significantly their legislation on temporary employment and little was changed for regular employment. While this may have made temporary work more attractive, it is unlikely to have generated net employment gains. Consequently, employment protection continues to be a deterrent for FDI location and firm size decisions in Western Europe. Nevertheless, while considering sectoral differences, our approach imposes a homogeneous reaction to the EPL legislation across many industries and job categories. Given the industry- and job-specific heterogeneity that exists especially in manufacturing where FDI is the most labor intensive, one may wish to inspect the affiliate location/size response to EPLs at a more detailed level. Finally, for many of these countries Japan is not the largest FDI-source, and these results may not be easily generalized. It would be interesting to compare how European and/or U.S. multinational firms react to similar employment protection legislation.