All the home-country effects listed under sub-sections 1-9 above and the subsequent economic opportunities can create, preserve or upgrade home country employment (UNESCAP 2020). This happens especially when overseas affiliates of MNEs engage in activities that complement those in the home economy, so that employment in their affiliates complements that of the parent company.
The impact on home-country employment can take various forms. Not only could there be an impact on the availability of jobs, but also their stability, the quality of jobs, the salary and wages and the skill-intensity of jobs.
SDG 8.5 aims to “achieve full and productive employment and decent work for all”. OFDI has the potential to contribute to this goal by generating, upgrading or preserving jobs.
Key insights
- Many studies find a positive impact on employment in the home country (Cozza, Rabellotti, and Sanfilippo 2015, Hayakawa et al. 2013, Hijzen, Jean, and Mayer 2011, Liu and Lu 2011, Navaretti, Castellani, and Disdier 2010, Becker and Muendler 2008, Federico and Minerva 2008, Masso, Varblane, and Vahter 2008). However, there are also studies that find a negative impact (Gu 2018, Debaere, Lee, and Lee 2010, Jäckle and Wamser 2010, Elia, Mariotti, and Piscitello 2009, Konings and Murphy 2006, Becker et al. 2005), and some do not identify an effect at all (Castellani, Mariotti, and Piscitello 2008, Yamashita and Fukao 2010, Kleinert and Toubal 2007), or find that the impact is mixed (Lee, Hong, and Makino 2020, Hong, Lee, and Makino 2019, Liu, Tsai, and Tsay 2015, Harrison and McMillan 2010, Lipsey, Ramstetter, and Blomström 2000, Blomström, Fors, and Lipsey 1997).
- A few studies have found a positive effect of OFDI on home country wages (Jäckle and Wamser 2010, Desai, Foley, and Hines 2009), though some studies have found the impact on wages to be dependent on the level of skills, with reduced wages for low-skilled work in the home country (Laffineur and Gazaniol 2019).
- Policies and HCMs aimed at promoting the employment generating effects of OFDI need to be carefully chosen, as not all forms of OFDI create employment, and some do substitute for home-country employment.
Interactions
B2) Industrial sector: OFDI in the manufacturing and services sectors can have a positive impact on employment (Federico and Minerva 2008, Hayakawa et al. 2013), though not all studies confirm this, and some report mixed results (Gu 2018, Harrison and McMillan 2010, Konings and Murphy 2006). OFDI in the tertiary industry could have a particularly strong effect on employment generation in the home country (Liu and Lu 2011, Hijzen, Jean, and Mayer 2011, Masso, Varblane, and Vahter 2008).
B3) Investment motivation: Market-seeking OFDI can enhance employment (Hong, Lee, and Makino 2019, Hijzen, Jean, and Mayer 2011).
B6) Investment destination: OFDI in more advanced economies tends to have more promising employment effects (Cozza, Rabellotti, and Sanfilippo 2015, Liu, Tsai, and Tsay 2015, Debaere, Lee, and Lee 2010, Harrison and McMillan 2010, Blomström, Fors, and Lipsey 1997), though this is not consistent across all studies (Konings and Murphy 2006, Navaretti, Castellani, and Disdier 2010).
B8) Transmission channels: Scale and scope effects could increase employment at the parent firm and its suppliers in the home country.
B9) Time since investment: The positive impact of OFDI on home country employment tends to happen in the long term (Hijzen, Jean, and Mayer 2011, Navaretti, Castellani, and Disdier 2010).
E2) Offshoring: Some OFDI may shift economic activities such as production overseas, potentially with a negative impact on employment (Gu 2018, Jäckle and Wamser 2010, Debaere, Lee, and Lee 2010, Elia, Mariotti, and Piscitello 2009, Konings and Murphy 2006, Becker et al. 2005). This is especially the case with OFDI to less advanced economies (Liu, Tsai, and Tsay 2015, Debaere, Lee, and Lee 2010, Harrison and McMillan 2010, Blomström, Fors, and Lipsey 1997). However, a majority of studies find a positive relationship on employment and associated indicators (Cozza, Rabellotti, and Sanfilippo 2015, Hayakawa et al. 2013, Hijzen, Jean, and Mayer 2011, Liu and Lu 2011, Navaretti, Castellani, and Disdier 2010, Desai, Foley, and Hines 2009, Becker and Muendler 2008, Federico and Minerva 2008, Masso, Varblane, and Vahter 2008), and some report mixed results (Lee, Hong, and Makino 2020, Hong, Lee, and Makino 2019, Laffineur and Gazaniol 2019, Liu, Tsai, and Tsay 2015, Harrison and McMillan 2010, Blomström, Fors, and Lipsey 1997, Lipsey, Ramstetter, and Blomström 2000). OFDI may simultaneously have favourable and unfavourable effects, e.g. benefiting high-skilled labour but harming low-skilled workers (UNESCAP 2020, Perea and Stephenson 2018).
Available Research Findings
Lee, Hong, and Makino (2020): Japanese OFDI to 60 countries between 1996 and 2010 had a mixed impact on employment.
Hong, Lee, and Makino (2019): Japanese OFDI from 1996 to 2010 enhanced domestic employment when it was natural resources- and strategic-asset-seeking, but reduced employment when it was labour resources seeking. The findings for market-seeking OFDI were mixed.
Laffineur and Gazaniol (2019): MNEs pay a wage premium to their employees. OFDI increases managerial wages but reduces the wages of workers engaged in offshorable tasks.
Gu (2018): Japanese OFDI has a negative impact on domestic employment.
Cozza, Rabellotti, and Sanfilippo (2015): Chinese OFDI into European advanced economies between 2003 and 2011 enhanced employment in Chinese MNEs.
Liu, Tsai, and Tsay (2015): OFDI undertaken by a sample of 1,084 Taiwanese manufacturing firms between 2000 and 2010 had a favourable impact on domestic employment when it was made in high-wage countries but tended to result in job loss when made in low-wage economies.
Hayakawa et al. (2013): Japanese manufacturing OFDI undertaken between 1992 and 2005 increased the demand for non-production workers when the investment was horizontal and raised demand for skilled production workers when it was vertical.
Hijzen, Jean, and Mayer (2011): OFDI made by French manufacturing firms between 1987 and 1999 was associated with job creation when it was market-seeking, though there were no employment effects when it was factor-seeking.
Liu and Lu (2011): Chinese OFDI from 1982 to 2007 had a positive impact on employment growth, especially in the tertiary industry.
Debaere, Lee, and Lee (2010): South Korean OFDI made between 1968 and 1996 decreased investing company employment growth rates, especially in the short term, when the investment was made in developing countries, though there was no effect when OFDI was undertaken in advanced economies.
Harrison and McMillan (2010): Evidence from United States manufacturing MNEs indicates that offshoring to low-wage countries substitutes for domestic employment. Yet, foreign and domestic employment complement each other when the activities in parent and subsidiary are significantly different.
Jäckle and Wamser (2010): Newly established German MNEs between 1996 and 2001 had a negative impact on firm employment growth, despite positive wage growth.
Navaretti, Castellani, and Disdier (2010): Italian and French OFDI have a positive effect on domestic employment.
Yamashita and Fukao (2010): Japanese OFDI between 1991 and 2002 did not lower domestic employment, but might have helped maintain levels of employment in Japan.
Desai, Foley, and Hines (2009): OFDI made by United States manufacturing firms between 1982 and 2004 increased domestic employee compensation.
Elia, Mariotti, and Piscitello (2009): Italian production-oriented OFDI made between 1996 and 2002 had a negative impact on labour demand.
Becker and Muendler (2008): German MNEs expanding abroad retain more jobs than those not doing so.
Source: https://www.degruyter.com/view/journals/bejeap/8/1/article-bejeap.2008.8.1.1770.xml.xml
Castellani, Mariotti, and Piscitello (2008): OFDI made by 108 Italian manufacturing MNEs from 1998 to 2004 did not reduce domestic employment in parent companies.
Federico and Minerva (2008): Italian OFDI made between 1996 and 2001 in 12 manufacturing industries from 103 administrative provinces is associated with faster local employment growth, relative to the national average.
Masso, Varblane, and Vahter (2008): Estonian OFDI between 1995 and 2002 had a positive impact on home country employment growth.
Kleinert and Toubal (2007): There is no significant impact of German OFDI from 1994 to 2004 on domestic employment.
Konings and Murphy (2006): In OFDI made by 1,067 European Union (EU) MNEs from 1993 to 1998, affiliate and parent employment acted as substitutes when investment occurred among advanced (Northern) EU countries. There was no impact when considering instead affiliates in low wage EU regions.
Becker et al. (2005): OFDI by German and Swedish multinationals substituted for parent company employment.
Lipsey, Ramstetter, and Blomström (2000): The foreign production of affiliates of Japanese firms was associated with higher employment in the parent company. These findings were seen to replicate similar observations of Swedish MNEs, but not of United States MNEs, whose foreign production instead reduced domestic employment.
Blomström, Fors, and Lipsey (1997): United States OFDI undertaken in developing countries was associated with reduced home country labour intensity, whereas Swedish OFDI undertaken in advanced and developing countries was instead associated with greater home-country employment.