Employment in Domestic Plants and Foreign Affiliates: A Note on the Elasticity of Substitution

For high wage countries, such as Austria, employment growth in foreign affiliates abroad is commonly expected to substitute for jobs at home. Estimates from bilateral data on the foreign and domestic activities of Austrian manufacturing firms over the period 1990-1996, covering the 10 most important host countries and 7 industrial sectors, indicate a significant and elastic substitution at the margin between employment at home and employment in foreign affiliates. However, this does not hold true of affiliates in Eastern Europe and there are significant differences across sectors. The size of total demand, as well as plant specific relative labour productivity, are also important determinants of relative labour demand.