Margins of Multinational Labor Substitution

Employment at a multinational enterprise (MNE) responds to wages at the extensive margin, when an MNE expands abroad, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. We detect salient adjustments at both margins for German manufacturing MNEs. With a one-percent increase in home wages, for instance, MNEs add 2,000 jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages removes 730 German MNE jobs.