FDI and onshore job stability: Upgrades, downgrades, and separations in multinationals

Abstract

We use linked employer–employee data to estimate the impact of firms’ foreign direct investment (FDI) into a low-wage country on workers’ job stability in a high-wage country. We are the first to consider internal (i.e., within-firm) job transitions. Specifically, we examine the impact of German firms’ FDI into the Czech Republic on the likelihood of onshore employees up- or downgrading to occupations that are more or less intensive in analytical and interactive tasks. To do so, we match firms with similar investing probabilities. We use this sample to estimate proportional hazards models to retrieve the dynamic effects on workers. We find that FDI increases the average likelihood of upgrades and downgrades by 17% and 19%, respectively. These effects are the strongest for jobs with low shares of nonroutine and interactive tasks, and they increase over time. They become substantial two years after the investment and reach 32%–46% and 35%–48%, respectively. FDI does not increase the hazard of worker–firm separations. Our results highlight the importance of internal firm restructuring, which enables firms to satisfy their altered domestic labor needs after FDI.