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MNC subsidiary closures: What is the value of employees’ human capital in new jobs?

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Abstract

We investigate the consequences of MNC subsidiary closures for employees who lose their jobs. In particular, we examine the extent to which the human capital that these employees acquired while employed by the MNC influences the wages they receive in their new jobs. We propose an employee displacement model for foreign MNC subsidiaries that integrates insights from the labor economics and international business literatures. We argue that a new employer will pay higher wages when signals indicate that potential employees have valuable, foreign human capital (e.g., the closed subsidiary was highly productive by host-country standards), and lower wages when signals indicate that potential employees have highly MNC-specific human capital (e.g., the employee had a long tenure in the closed subsidiary). We provide empirical evidence based on a sample of 110,133 displaced employees of closed MNC subsidiaries in Portugal. Our data set spans the period from 2005 to 2009. Showing that MNCs create a valuable pool of human capital for host-country firms when they close subsidiaries, our findings have important implications for research and practice.

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Notes

  1. For convenience, we use the female form as a default whenever we refer to an individual employee, that is, by using “she” and “her.” However, this does not in any way imply that the issues discussed here relate exclusively to women. All theoretical argumentations apply to male and female employees.

  2. Examples include the protests over pharmaceutical company Merck Organon’s closure of its R&D center in the Netherlands, Nokia shifting its mobile phone production from Germany to Romania, and Deutsche Post closing its sorting center at Wilmington Airpark in Ohio.

  3. On the basis of this procedure, mergers and acquisitions cannot be ruled out. However, Mata and Portugal (2002) show that this problem only rarely occurs and that it does not affect MNC subsidiaries and domestic firms differently. Therefore this factor cannot be expected to bias our results.

  4. The estimation was conducted using the suest-command in Stata.

  5. The correlation table for the sample of individuals displaced from domestic firms presents similar results and is available upon request.

  6. All estimation results that are not included in the appendices are available from the authors upon request.

  7. We have not included employees who took more than 1 year to find a new job in our sample because we cannot observe them during a certain period of time. In this period, the employees might have been involved in activities (such as entrepreneurial or educational activities) that might influence their value for the new firm.

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Acknowledgements

The authors would like to thank Julian Birkinshaw for his guidance through the submission process and three anonymous referees for their constructive comments and suggestions that were very influential for the development of this article. We also thank René Belderbos, Isabel Estrada, Dries Faems, Elena Golovko, Shad Morris, Florian Noseleit, Larissa Rabbiosi, and Sergey Tikhonov for their valuable comments. This research uses data from the Portuguese Ministry of Solidarity and Social Security, GEP and was partially supported by the Portuguese Science and Technology Foundation (Grant PTDC/EGE-ECO/118070/2010).

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Authors and Affiliations

  1. Department of Strategic Management and Globalization, Copenhagen Business School, Frederiksberg, Denmark

    Wolfgang Sofka

  2. School of Economics, University of Coimbra and IN+, Center for Innovation, Technology and Policy Research, Lisbon, Portugal

    Miguel Torres Preto

  3. Department of Innovation Management and Strategy, Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands

    Pedro de Faria

Authors
  1. Wolfgang Sofka
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  2. Miguel Torres Preto
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  3. Pedro de Faria
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Corresponding author

Correspondence to Pedro de Faria.

Additional information

Accepted by Julian Birkinshaw, Guest Editor, 15 January 2014. This paper has been with the authors for three revisions.

Appendices

APPENDIX A

Table A1

Table A1 Correlation matrix of dependent and independent variables
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APPENDIX B

Table B1

Table B1 Consistency check estimations on hourly salary in new job for displaced employees of foreign MNC subsidiaries
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Sofka, W., Preto, M. & de Faria, P. MNC subsidiary closures: What is the value of employees’ human capital in new jobs?. J Int Bus Stud 45, 723–750 (2014). https://doi.org/10.1057/jibs.2014.17

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