The Effect of Multinationals’ Downsizing on the Domestic Labour Market

ABSTRACT This study examines the effect of foreign-owned firms’ downsizing on the domestic labour market using Korean firm-level data during 2006–2017. We identify horizontal and vertical effects of foreign firms on the domestic employment within the region and across regions. Empirical results support that foreign firms’ downsizing leads to a decrease in domestic firms’ employment in the same industry. Domestic firms in the upstream industries reduce employment in response to foreign firms’ downsizing. Displaced workers from foreign firms may be transferred to domestic firms in the downstream industries. These results are more pronounced within the region.