Swedish Multinationals and Competition from High‐ and Low‐Wage Locations

Abstract

This study uses data on Swedish multinationals to estimate cross‐elasticities of labor demand in different locations. With a vertical decomposition of the firm’s activities, whether there is substitution or complementarity between employment in different parts of the firm will depend on whether wage changes lead to a relocation of activities or simply to changes in marginal costs and/or demand for inputs in other parts of the firms. It is found that there is some evidence of a substitutionary relationship between employment in the Swedish parts of the firms and employment in other high‐income locations, but no evidence of substitution stemming from employment in low‐income locations.