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Abstract
This paper examines the substitution pattern between parent company and foreign affiliate employment of European multinationals. The data is drawn from the AMADEUS and BANKSCOPE firm-level databases and covers parent companies in 14 high-wage European countries (EUR14) and their affiliated companies in the wider Europe including locations in the low-wage Central and East European countries (CEEC) for the period 2000-2004. We find that the substitution elasticity between employment of the EUR14 parent companies and employment in their foreign affiliates in the CEEC is quite low. Furthermore, the substitution possibilities are higher between parent company and affiliate employment in other West European countries than those between parent company and affiliate employment in the CEEC. Finally, we find that the output change of the parent company and to a lesser extent that of the foreign affiliates is more important than changes in relative wages in determining the relative labour demand. [PUBLICATION ABSTRACT]