Multinationals, "relocation", and employment in Europe THE ROLE OF LABOR MARKET INSTITUTIONS

Multinational corporations employ millions of people in Europe, and over 70 million worldwide. Through their role in foreign direct investment (FDI) and international trade, they are the motors of the "globalization" of the international economy. This chapter considers their impact on employment in Europe. In recent years, an old debate, on the "relocation" of production to low-cost economies, has resurfaced with renewed vigour in France, Germany, and elsewhere. The reasons for this re-emergence are explored, in particular two interlinked factors: the growing international coordination and integration of productive activities within multinationals, and the rapid integration into the world economy of huge new markets in central and eastern Europe and in Asia. The chapter uses both quantitative data and recent prominent cases of relocation to analyse the forms and extent of relocation, both between Europe and the developing world, and within Europe itself. It argues that in some respects, the scale of the problem has been exaggerated. Many activities are not susceptible to relocation, FDI to lower cost countries is often driven by a "market-seeking" rather than "efficiency-seeking" rationale, and outward investment often appears to have a net employment-generating effect in home economies through the export of capital goods, knowledge-intensive components, and professional and managerial skills. None the less, there are a number of worrying aspects: the rise of low-labor-cost areas on the European Union's eastern borders; the expanding range of economic activities which may be "spun off" from other productive processes and moved to remote locations; the increasing competition from countries such as India in high-skill, even "leading edge", sectors such as computer software. More generally, while economists may argue that in the long run "efficiency seeking" by multinationals helps raise efficiency and competitiveness, and hence employment, in home countries, relocation generates massive social consequences in the short run. Relocation is not just a threat between Europe and the developing world, but within Europe itself, where the single market has prompted concerns about "regime competition" and "social dumping". The redistribution of employment by multinationals between countries may not affect aggregate employment levels in Europe; but it certainly matters if it leads to the same number of people being employed on worse pay and lower security. The chapter concludes by briefly examining some European employment policy questions Dosed by international relocation. Can government attempts to reduce the cost of labor be a viable strategy for stemming the loss of jobs to South-East Asia and elsewhere? What role can be played by international clauses on labor standards? How can the European Union avoid a competitive bidding down of pay and conditions of employment, and the deleterious employment effects of "grant-chasing" by multinationals? Finally, can collective action by unions and workforces at national and international level help regulate the impact of multinationals on employment levels and stability