Multinational closes a subsidiary: higher salaries for former employees

The closure of foreign subsidiaries and resulting job loss has provoked outrage and public protests in many countries in the recent past. For example the protests over pharmaceutical company Merck Organon closing its R&D center in Oss. But according to Pedro de Faria of the University of Groningen it is not all bad news. Former employees are highly valued by local firms, and get higher salaries in their new jobs. Together with fellow researchers from Copenhagen Business School and the University of Coimbra he published an article in Journal of International Business Studies.

De Faria: “It all attracted disproportionally much negative media attention: Nokia shifting mobile phone production from Germany to Romania, and Deutsche Post closing its sorting center at Wilmington Airpark in Ohio. But we now provide new insights on the impact of the closure of foreign subsidiaries on local economies.”

Human capital

Pedro de Faria, Wolfgang Sofka and Miguel Torres Preto show that the former employees of foreign firms have generally higher salaries in their new jobs than comparable employees who leave domestic firms. This indicates that domestic firms value the pool of human capital left by the multinational companies when they close subsidiaries.

Vulnerable employees

“Policymakers are often called upon to intervene,” says de Faria, “We identify the group of employees that are especially vulnerable to the economic consequences of firm closure. Support measures, such as temporary employment agencies, subsidies, and job centers, are best directed toward displaced workers who did not acquire knowledge and skills at multinational companies, as the cuts in salary that they can expect in a new job are especially pronounced.”

► Sofka, W., Preto, M., and de Faria, P. (2014) MNC subsidiary closures: What is the value of employees’ human capital in new jobs? Journal of International Business Studies.

Note for the press

For more information:
• Pedro de Faria, department of Innovation Management & Strategy, Faculty of Economics and Business, University of Groningen.
• Wolfgang Sofka, ws.smg@cbs.dk (Copenhagen Business School)
• Miguel Torres Preto, miguel.preto@fe.uc.pt (University of Coimbra)