Foreign ownership and job insecurity during the recession: The moderating effect of union density in the UK

Abstract

The institutional influence, specifically trade unions, on the job insecurity of workers in foreign-owned enterprises (FoEs) has been generally overlooked. This study uses national representative private sector data to examine firms’ layoff incidence and the number of staff made redundant in response to the 2008–2012 recession in the UK. Probit regression and negative-binomial regression show that overall FoEs appear to be more likely to undertake redundancies and to lay off more workers than domestically-owned enterprises. However, the strength of trade unionism, measured by union membership density, has a moderating effect on the incidence of redundancies controlling for the adverse impact of the recession on companies studied and a wide range of industrial and firm characteristics. Furthermore, FoEs’ headquarter location seems to have no effect on the propensity of layoffs or quantity of layoffs in the UK.

Keywords

Foreign-owned enterprise job insecurity recession trade unions UK

Introduction

Multinational enterprises’ (MNEs) activity and the process of foreign direct investment (FDI) have been an important part of the globalized world economy and contributed significantly to employment in host countries (UNCTAD, 2017: 9). There has been a lasting concern about job insecurity in foreign-owned enterprises (FoEs) compared to domestically-owned enterprises (DoEs), especially during a major recession. Extant empirical studies endeavouring to examine the association between FoEs and plant closures have produced highly ‘country-dependent’ findings (for a good review see Wagner and Gelübcke, 2012).

This study investigates layoffs at FoEs in the UK during the 2008–2012 long recession. The UK is of interest for a number of reasons, including being the second largest host economy (after the USA) for inward FDI among developed countries (Jost, 2013) and is relatively more successful in attracting inflow FDI than its EU continental partners due to its lower labour protection compared with its EU counterparts (Haaland et al., 2003). Consequently, more than half of large companies in Britain have been foreign-owned since 2009 (Brummer, 2012).

To investigate job insecurity over the recent recession, this study aims to contribute in three ways. First, we empirically examine the differences of a discreet form of job insecurity, redundancy, between FoEs and DoEs. Redundancy is a more subtle method of cutting back when compared with plant closures and tends to be overlooked at FoEs (Andrews et al., 2012). Second, we study the moderating role of trade union influence on the relationship between actual job insecurity, level of redundancies and FoEs. This adds a new dimension to the relation between increased subjective job insecurity and MNEs (Dill and Jirjahn, 2016; Wang et al., 2018). It may offer a partial explanation for the newly observed union activism under adverse economic conditions (Angrave et al., 2017). Third, we examine the relationship between the location of the FoEs’ source country headquarters and job insecurity rooted in the increased globalization witnessed by the growth of FDI from emerging markets in developed economies (Seal, 2016).

National representative data were used, drawing on 1500 observations from the Workplace Employment Relations Survey (WERS 2011) in Britain, during a critical time period when the British economy experienced a ‘double-dip’ recession. The article is organized as follows: the second section discusses the theoretical underpinning of firm-level practices: redundancy and foreign ownership, from which we develop our hypotheses. The third section describes the methodology and the data set used. The empirical analysis is presented in the fourth section, followed by a discussion in the fifth. Finally, conclusions are drawn from the analysis.

Literature review

Foreign ownership and job insecurity in the host country

Policymakers frequently emphasize that FoEs can lead to significant positive employment effects in host countries and regions. This employment effect was grounded in a range of academic studies (Harris, 2009; Navaretti et al., 2003) and evident in terms of both new job creation and spillover effects (Inekwe, 2013; McDonald et al., 2005). However, there are concerns about job insecurity at FoEs based on the following: first, there is the ‘foot loose’ or ‘easy come easy go’ syndrome (Adam, 1975; Gorg and Strobl, 2003). FoEs can shift production between locations more easily and may exercise such advantage during economic downturns (Bernard and Jensen, 2007; Bernard and Sjoholm, 2003; Blanchard et al., 2012; Fabbri et al., 2003); and this is compounded by a short-term profit focus found among FoEs (Dill et al., 2016). Second, researchers have attributed a higher elasticity of labour demand to job insecurity at FoEs than DoEs for a number of reasons. Deepening international integration of production results in more elastic product demand, labour as a derived demand is related to the former, and with increased competition and volatility in the product markets, the demand for labour becomes more volatile, thus leading to higher fluctuations in labour demand (Geishecker et al., 2012; Scheve and Slaughter, 2004). International trade can also make domestic labour more substitutable with foreign production factors (Slaughter, 2001). Third, employment volatility tends to be higher at FoEs than DoEs (Fabbri et al., 2003; Meriküll and Room, 2014). FoEs tend to implement new production concepts and management practices in overseas subsidiaries that often involve a substantial reorganization and job loss. The presence of a greater use of stronger performance management regimes at FoEs than DoEs entails the implicit or explicit threat to dismiss in cases of poor performance of staff or under difficult economic conditions (Jirjahn, 2017).

However, empirical studies on the effect on employment between FoEs and DoEs have produced mixed findings (Wagner and Gelübcke, 2012). The effect in the UK is sector-specific but the overall conclusion is that FoEs are more likely to shut down or have a lower survival rate than purely domestically-owned plants. This is despite the operational advantages enjoyed by multinationals that make them less likely to shut down (Fabbri et al., 2003; Harris, 2009). We have limited understanding of the subtle cut in employment, redundancy, especially during economic hard times. This is against the fact that 70% of economic activity in Britain is linked with the rest of the world and mainly carried out by FoEs (ONS, 2014), which makes FoEs more vulnerable to external market shocks.

Deeper international economic integration makes domestic workers more easily substitutable by foreign workers (Rodrik, 1997), and higher financial risks or general economic shocks can prompt such substitute-seeking behaviour. The 2008–2012 recession had the worst impact on the UK economy since 1997, with the unemployment rate climbing to 8.5% in 2012, and 3.7 million workers having been made redundant since 2008 (Aol, 2013). Considering less political pressure and fewer social obligations to preserve jobs at FoEs than DoEs, FoEs may use redundancy to get rid of ‘expensive’ labour in the wake of the recession either downsizing or substituting labour for capital with minimum fuss. Furthermore, FoEs tend to be large in size in the UK, with 10% of FoEs of non-financial business employing at least 250 people compared with only 0.3% of similar DoEs in 2012 (ONS, 2014), and large firms were found to be more likely to use redundancy instead of other means to cope with the economic downturn (Lai et al., 2016). We, therefore, propose that:

Hypothesis 1a: FoEs are more likely to lay off workers in the UK during the 2008–2012 recession than DoEs.

Hypothesis 1b: FoEs tend to make proportionally more staff redundant than DoEs.

Trade unions and job security

Hyman (2002: 57) stated that ‘jobs are always at the mercy of economic and technological vagaries’. Technological or external economic shocks may cost jobs, but there is a range of softer mechanisms firms have at their disposal, such as redeployment, pay freezes, temporary closures and unpaid leave (Lai et al., 2016; Wang et al., 2018). Whether or not workers can constrain the imposition of compulsory redundancies is subject to their ability to mobilize countervailing power (Kelly, 2012; Olson, 2009). Empirical studies show that well-supported collective bargaining with the threat of collective action (such as overtime bans and strikes) can curb the use of compulsory layoffs in firms with more than 100 employees (Brewster et al., 2015), and this is in addition to the fact that union members equipped with better legal advice can defer MNEs’ opportunistic behaviour (Jirjahn, 2017). This latter point is the focus of this study since FoEs tend to be large in the UK and tend to use compulsory redundancies more readily when unions are weak and collective bargaining unavailable. This is despite relatively clear and supportive legislation imposed on large firms to protect workers from reckless ‘hire and fire’ practices (Brewster et al., 2015).

Although the decline in union members in Britain has been dramatic over the last three or four decades, from 13 million in 1979 to 6.5 million in 2015, and union members only make up 13.9% of the workforce in the private sector (ONS, 2015), unions remain strong in some sectors and regions and their ability to bargain in the collective interests of their members remains high in some workplaces (Glassner et al., 2011). Large businesses are more likely to be unionized (Brewster et al., 2015; Jirjahn, 2017). One main objective of trade unions is the employment security of their members alongside wage increases (Gall, 2003; Pencavel, 1984). One way in which unions support their members is by being the workplace ‘police force’ for the implementation of laws governing such areas as health and safety, equality and compulsory redundancies (Metcalf, 2013). A lengthy process of compulsory redundancies can prove to be both expensive and difficult for firms when faced with strong union organization.

Unions can safeguard jobs through collective negotiations (Kaufman and Bennett, 2017) when their influence is strong. Union strength in such situations is derived from a number of factors including, inter alia, density levels (Visser, 2013), degree of company-level organization and activity (Waddington and Kerr, 2009), support from the national union (Kelly and Heery, 2009), and wider political interest in the behaviour of foreign-owned firms when it comes to local employment issues (Traxler and Brandl, 2010). When there is the possibility of layoffs, union density usually increases due to concerns over jobs, work intensity and stress (Blanchflower et al., 1990). By the time the company moves towards larger scale redundancies the union is more embedded, with stronger local support and national backing, and this, in turn, flags up to the employer that there will be increased costs of layoffs associated with challenges, a longer time frame, reputational damage and local political opposition (Emmenegger, 2015; Roche et al., 2015). Altogether, such robust opposition from unions may persuade senior decision makers to negotiate alternatives to layoffs (Glassner and Keune, 2010). Therefore, trade union strength can reduce the likelihood of a compulsory redundancy regime:

Hypothesis 2: Union strength will moderate the propensity to lay off at FoEs.

Countries of origin and employment insecurity in a host country

Country of origin has been shown to play a substantial role in determining employment volatility in at least three aspects. First, it influences the MNE decision makers’ willingness to undertake FDI in particular foreign locations, the types of FDI that they employ and the resultant effects upon employment (Cuervo-Cazurra and Un, 2015). Many MNEs concentrate their inward investment activities in countries or regions possessing the smallest geographical, cultural and psychic distance from their headquarters’ location in order to minimize the resultant perceived risks (Jirjahn, 2017). Second, institutional approximation between the EU and UK may contribute to reducing entry and transaction costs for EU firms operating in the UK. If so, it is reasonable to expect that EU-originating investments in the UK will be less speculative and of a more long-term strategic character compared with investments from other parts of the world, thus plausibly having a more positive impact on employment in the recipient host economy. Third, labour market institutions determine the flexibility with which a firm can alter labour costs in order to adjust to demand fluctuations. This is typically reflected by the level of employment protection of national labour regulations and the influence of trade unions. FoEs from a more flexible labour market, such as an emerging market, may have a greater tendency to change labour costs (through quantity change of labour) than those from a more rigid labour market. For example, Meriküll and Room (2014) found that the elasticity of labour demand at FoEs is country-specific, subject to the degree of labour market protection between their home and host countries.

Although the UK is the most popular destination of investors from the emerging markets (Seal, 2016), FoEs are predominately from the EU and North America. For example, in the non-financial business economy in 2012, the majority (54%) of FoEs were owned from within Europe, with a third (33%) owned from within North and South America, and the remainder were owned by the rest of the world (ONS, 2014). Since geographic location and labour market regulations have been important factors for strategic decisions behind FDI (Cuervo-Cazurra and Un, 2015; Harris, 2009) and considering headquarters of North American FoEs are more geographically distant than their counterparts in the EU, and with the lower employment protection in the former than in the latter, we would, ceteris paribus, expect that:

Hypothesis 3: EU-owned FoEs are less likely to lay off workers than American-owned FoEs in the UK.

Research methodology

Background to the sample

The data for this study were taken from the nationally representative Workplace Employment Relations Survey 2011 (WERS 2011) in the UK. The WERS has been undertaken every six years since 1980. For the purpose of this study, we used the cross-sectional data of 2680 organizations. The data were collected between March 2011 and June 2012 when the UK was experiencing a ‘double-dip’ recession following the financial crisis of 2008.

As a national data set, the WERS 2011 data have the advantage of collecting national representative information on employment practices in a changing economic environment (Whyman et al., 2015). Given the recent recession, alongside the standard set of common questions asked to HR managers about their HR practices and workforce characteristics, WERS 2011 includes a number of additional questions aimed at capturing the impact of the recession and employment practices since the economic downturn of 2007–2012. It also included questions on the ownership of firms, eliciting information as to whether the organization was in domestic or foreign ownership, as well as whether the organization was publicly or privately owned at the time the survey was completed. This article is concerned with the contrasting response to the recession between domestic and foreign-owned workplaces in the same industry in the private sector. Industries where there was no foreign ownership were therefore excluded from the analysis. This included education, public administration and real estate activities. In excluding these industries the total number of usable observations in the private sector was reduced to 1500 workplaces.

Measures

Redundancy was defined as whether or not the organization undertook compulsory or voluntary redundancy in response to the recession of 2008–2012. There were 439 workplaces which reported that redundancies had been made, accounting for 29% of the sample. The extent of the redundancy behaviour was measured in two ways: first, the number of employees made redundant and second, by the proportion of the workforce made redundant. The former is the number of employees laid off during the previous 12 months before the survey took place. There were 350 firms that provided the exact number of employees who had been laid off in that period. The mean number of people made redundant among these workplaces was 29, with a range of between 1 and 1000 persons. The latter was calculated by dividing the number of people made redundant by the number of employees on the payroll during the previous year. The mean workforce made redundant among these firms was 8%, although the proportion made redundant in any specific firm ranged from 0.1% to 76%.

Foreign ownership

There are a number of ways of defining whether a domestic organization is foreign-owned: for example, the OECD (2003) suggests that a controlling interest can be established within a domestic firm if a foreign owner has a minimum of 10% of the ordinary shares or voting shares within a domestic company. For the purpose of this study, however, we used more a stringent measurement: an FoE is defined as the foreign owner having a greater than 50% ownership of the domestic firm. This is also due to the availability of information collected in WERS 2011 study. There were 366 FoEs in the sample accounting for 24% of the total number of firms.

MNE’s head office location was the source country behind FoE activity in the UK. Of the 338 MNEs in the sample, the location of their head offices was distributed between the UK (42%), Europe (21%), North America (19%) and Japan and others (18%). Given the spatial distribution of these head offices, it was also possible to evaluate whether the location of the head office had an impact on changes in absolute and relative employment patterns in the wake of the 2008–2012 recession.

Model specification

We intend to make a comparison of redundancy behaviour: (1) between FoEs and DoEs and (2) among FoEs with different head office locations; we have 1500 observations for question 1 and 350 observations for question 2. To examine the comparison between two or more groups, two probit regressions are employed. The moderating effect is tested by an interactive item.

In order to examine the extent of layoffs between FoEs and DoEs if redundancies had been made (350 firms), we consider both the absolute number of employees made redundant and the proportion of the workforce laid off. For the former, since the distribution of the number of employees made redundant is over-dispersed, in particular, with the conditional variance (47) exceeding the conditional mean (29), a negative-binomial regression was considered the appropriate statistical method (UCLA, 2014). For the latter, since the value of the proportion of the workforce laid off is between 0.2 and 0.8, an ordinary least squares (OLS) regression was employed which is considered to be more reliable (Long, 1997).

Analysis

Preliminary analysis

In Table 1, the results indicate that foreign ownership, workplace size and the extent of the adverse effect caused by the recession are positively and significantly correlated with the likelihood that firms undertook redundancy. Trade union strength is negatively and significantly correlated with firm redundancy behaviour. Other variables show correlations as expected: for example, the higher unionized workforce is positively correlated with the size of the firm.

Table 1.

Descriptive statistics of main variables for workplaces in the sample.

	Variables	Definition	Mean (SE)	1	2	3	4	5	6
1	Redundancy action	Compulsory or voluntary redundancies were taken in response to the recent recession [0, 1]	0.29 (0.45)	1
2	Foreign ownership	Foreign-owned workplace [0, 1]	0.24 (0.43)	0.14**	1
3	Ln (Workplace size)	Current number of employees on the payroll at this workplace [5, 11605]	264 (820)	0.27**	0.33**	1
4	Ln (Workplace history)	Number of years workplace has been in operation [0, 390]	31 (39)	0.15**	0.06*	0.24**	1
5	Recession impact	Workplace has been adversely affected by the recent recession [1 = no adverse effect, 5 = a great deal]	3.25 (1.20)	0.35**	−0.03	−0.04	0.05*	1
6	Union strength	Percentage workforce being union member [0, 1]	0.11 (0.24)	0.08**	0.22**	0.45**	0.16**	−0.02	1

p < 0.05; **p < 0.01.

A T-test was undertaken (Table 2) in order to compare the mean differences in the organizational characteristics between FoEs and DoEs. The results show that 40% of FoEs had made some employees redundant in response to the recent recession, compared with only 25% of DoEs which took this action, a result which is significantly different (|T| = 5.51, p < 0.001) between the two types of organizations. There was no significant difference, however, in terms of the adverse effect of the recession on their businesses between DoEs and FoEs. FoEs tend to have a larger proportion of union members than DoEs. The average proportion of union members for the former is 21% compared with only 8% among DoEs.

Table 2.

T-test of firm characteristics between foreign-owned and domestically-owned enterprises.

Definition	Foreign-owned enterprises	UK-owned enterprises	\|T\|
Redundancy action	0.40 (0.02)	0.25 (0.01)	5.51***
Recession has had a large adverse impact	0.42 (0.3)	0.45 (0.01)	1.29
Workplace history	33 (38)	29 (37)	1.68*
Firm size	520 (61)	187 (20)	6.42***
5–49	21 (1)	18 (0.4)	2.37**
50–249	132 (6)	111 (3)	3.49***
250	1101 (165)	1046 (127)	0.31
Union strength	0.21 (0.01)	0.08 (0.00)	8.34***
Sector
Manufacturing	0.25 (0.02)	0.11 (0.01)	6.45***
Electricity, gas, steam & air	0.09 (0.01)	0.01 (0.00)	8.14***
Water	0.02 (0.00)	0.02 (0.00)	0.69
Construction	0.04 (0.01)	0.06 (0.00)	1.82
Wholesale & retail	0.18 (0.02)	0.17 (0.01)	0.75
Transportation & storage	0.07 (0.01)	0.04 (0.00)	1.96**
Accommodation & food service	0.06 (0.01)	0.11 (0.00)	2.57***
Information & communication	0.06 (0.01)	0.04 (0.00)	2.07**
Financial & insurance	0.06 (0.01)	0.01 (0.00)	4.61***
Professional, scientific & technical	0.07 (0.01)	0.09 (0.00)	1.22
Administrative & support service	0.04 (0.01)	0.07 (0.00)	2.01**
Human health & social work	0.01 (0.00)	0.11 (0.00)	6.10***
Arts, entertainment & recreation	0.01 (0.00)	0.04 (0.00)	2.03**
Other service activities	0.01 (0.00)	0.03 (0.00)	2.25**
Occupation of the largest group
Higher managerial & professional	0.15 (0.02)	0.07 (0.00)	5.30***
Lower managerial & professional	0.12 (0.01)	0.10 (0.00)	0.88
Intermediate occupation	0.22 (0.02)	0.19 (0.01)	0.82
Lower supervisory & technical occupations	0.09 (0.01)	0.05 (0.00)	2.64***
Semi-routine occupation	0.25 (0.02)	0.35 (0.01)	3.18***
Routine	0.14 (0.02)	0.22 (0.01)	2.91***
Sample size	366	1134

p < 0.05; ***p < 0.01.

Since the relationship between foreign ownership and employment is sector-specific (Fabbri et al., 2003; Harris, 2009), we further include the information on business activity and workforce skill characteristics. As can be seen in Table 2, FoEs have a significantly higher presence in manufacturing (25%), electricity, gas, steam and air (9%), financial and insurance (6%), transportation and storage (7%) and information and communication (6%) compared with UK-owned firms: the proportions of which were 11%, 1%, 1%, 4% and 4% respectively. Conversely, DoEs were more likely to have a bigger presence in the accommodation and food service sector, human health and social work sector, the arts, entertainment and recreation, and other services. A similar proportion of FoEs, 18% compared with DoEs, 17%, were present in the wholesale and retail sector, and because of this near equality, this is used as the base group in further regression analysis.

In terms of the skill levels of the workforce employed by FoEs and DoEs, the WERS 2011 data categorize the workforce into six groups based upon the largest occupational group at the workplace according to the Standard Occupational Classification 2010. There is a significantly higher proportion of higher managerial and professional employees (15%) among FoEs, compared with 7% of DoEs. The latter were more likely to employ lower-skilled workers. Over one-third (35%) of DoEs categorized the largest occupational group in their workforce as being in semi-routine jobs and almost a further fifth (22%) had their largest occupational group placed within routine jobs. However, the proportion of FoEs is 25% and 14%, respectively. Since both FoEs and DoEs have a similar share of the largest occupational group as being in intermediate occupations, it is used as the base group in subsequent regressions.

Before undertaking our regression analysis, we tested the extent of multicollinearity among the main variables; the variance inflation factor (VIF) was computed. The VIF has values ranging from 1.1 to 1.4, far below the threshold of 10 (Whyman et al., 2015), suggesting multicollinearity is not a concern.

Regression results

This study seeks to explore the redundancy behaviour between FoEs and DoEs during the recent recession in the UK. The first probit regression result is reported in Table 3. We further explore the extent of redundancies made between FoEs and DoEs in Tables 4 and 5. We then examined the potential impact of location of 366 MNEs’ head offices on their redundancy decisions in Table 6.

Table 3.

Probit regression on whether the firm undertook redundancy as a countermeasure to the financial crisis and the moderating effect of trade union.^a

Redundancy action = 1	Coef. (SE)	Coef. (SE)
Foreign ownership	0.23* (0.10)	0.33*** (0.12)
Firm size (ln (number of employees))	0.21*** (0.03)	0.20*** (0.03)
Firm history (ln (number of years))	0.10* (0.04)	0.09* (0.05)
Adverse impact of the recession	0.55*** (0.04)	0.54*** (0.04)
Union strength	0.07 (0.23)	0.32 (0.26)
Union strength*Foreign ownership		−0.66* (0.36)
Industry (base group: wholesale and retail)
Manufacture	0.19 (0.14)	0.21 (0.14)
Electricity, gas, steam & air	−0.18 (0.27)	−0.08 (0.27)
Water related industry	−0.28 (0.36)	−0.19 (0.32)
Construction	0.55*** (0.19)	0.57*** (0.19)
Transportation & storage	−0.16 (0.20)	−0.16 (0.24)
Accommodation & food service	−0.45** (0.18)	−0.44** (0.18)
Information & communication	0.20 (0.23)	0.22 (0.23)
Financial & insurance activities	0.19 (0.29)	0.18 (0.29)
Professional, scientific & technology	0.58*** (0.18)	0.61*** (0.18)
Administration & support service	−0.14 (0.19)	−0.12 (0.19)
Human health & social work	−0.65** (0.24)	−0.65*** (0.24)
Arts, entertainment & recreation	0.21 (0.23)	0.23 (0.23)
Other service activities	0.42 (0.26)	0.43 (0.26)
Largest occupation group (base group: intermediate occupation)
Higher managerial and professional	0.21 (0.17)	0.20 (0.17)
Lower managerial and professional	−0.02 (0.16)	−0.03 (0.16)
Lower supervisory and technical	−0.28 (0.18)	−0.26 (0.18)
Semi-routine	−0.53*** (0.14)	−0.52*** (0.14)
Routine occupation	−0.19 (0.15)	−0.18 (0.15)
Number of observations	1295	1295
Log pseudolikelihood	−551.47	−549.84
Pseudo R²	0.28	0.28

These data exclude three sectors for which there was with no foreign ownership.

p < 0.1; **p < 0.05; ***p < 0.01.

Table 4.

OLS regression on proportion of workforce made redundant.

	Coef. (SE)
Foreign ownership	0.05*** (0.01)
Adverse impact of the recession	0.01 (0.00)
Firm size (ln (number of employees))	−0.01** (0.01)
Firm history (ln (number of years))	0.00 (0.07)
Union strength	−0.00 (0.02)
Union strength*Foreign ownership	0.05 (0.05)
Industry	Yes
Occupation group	Yes
Number of observations	344
Adjusted R²	13%

p < 0.1; **p < 0.05; ***p < 0.01.

Table 5.

Negative-binomial regression on number of employees made redundant.

	Coef. (SE)
Foreign ownership	0.95*** (0.25)
Adverse impact of the recession	0.32*** (0.08)
Firm size (ln (number of employees))	0.73*** (0.05)
Firm history (ln (number of years))	0.03 (0.12)
Union strength	0.24 (0.49)
Union strength*Foreign ownership	0.26 (0.49)
Industry	Yes
Occupation group	Yes
/lnalpha	0.81
alpha	2.24
Number of observations	347
Log likelihood	−939.18
Pseudo R²	11%

p < 0.1; **p < 0.05; ***p < 0.01.

Table 6.

Probit regression on the impact of headquarters location on MNEs’ redundancy action.

Redundancy action = 1	Coef. (SE)
UK based FoE
North American based FoE	0.42 (0.24)
Europe based FoE	−0.22 (0.22)
Japan and other locations based FoE	0.02 (0.23)
Firm size (ln (number of employees))	0.13** (0.06)
Firm history (ln (number of years))	0.18 (0.09)
Union strength	−0.28 (0.39)
Adverse impact of the recession	0.58*** (0.09)
Industry	Yes
Occupation group	Yes
Number of observations	266
Log pseudolikelihood	−151.44
Pseudo R²	0.23

p < 0.1; **p < 0.05; ***p < 0.01.

In Table 3, using the whole sample of 1500 observations, specification 1 shows that FoEs are moderately significantly correlated with the likelihood to make workers redundant (b = 0.23, p < 0.05) when holding other observable characteristics constant: size, history, impact of recession, the presence of union strength and controlling for industry and occupation groups. This provides empirical evidence to support Hypothesis 1a. In line with the extant literature, those organizations that had been greatly affected by the recession and larger firms are positively and significantly correlated with carrying out redundancies. In specification 2 of Table 3, an interaction item between union strength (using density as a proxy for strength measured as a percentage of employees unionized) and foreign ownership was included: the coefficient is negative and significant (b = −0.66, p < 0.10), and indicates that foreign-owned enterprises with high union presence are less likely to make staff redundant. This provides evidence to show the countervailing power of trade union, therefore supporting Hypothesis 2.

In Table 4, we examine determinants of the proportion of the workforce made redundant; and in Table 5, we look at factors that are correlated with the number of staff layoffs. The OLS regression in Table 4 shows that FoEs are significantly (b = 0.05, p < 0.01) more likely to make a higher proportion of their workforce redundant during the recession. When large firms laid off a smaller proportion of their workforce, this could entail a larger absolute number of employees. This is confirmed in Table 5, where a positive and significant correlation between the numbers of employees made redundant and firm size was established. After controlling for firm size, the reported impact caused by the recession, and union strength, industry and occupation group, again the correlation between FoEs and the higher absolute number of redundancies is significant (b = 0.95, p < 0.001). This provides evidence to support Hypothesis 1b.

Apart from analysing the differences of offloading employees between DoEs and FoEs as the response to the recent financial crisis in the UK, this article also examined the potential different responses of the FoEs from different source countries (Table 6). Using FoEs’ head office based in the UK as the base group, there was no statistically significant difference between this base group and those FoEs that had their head offices in America, Europe or Asia as to whether these firms undertook redundancy. Instead, it shows that firm size (b = 0.13, p < 0.05) and recession impact (b = 0.58, p < 0.01) are positively and significantly correlated with redundancy among FoEs in the UK. Therefore, Hypothesis 3 is not supported.

Discussion

Theoretical implications

The present study investigates job insecurity, in terms of redundancy, at FoEs during the 2008–2012 recession, and we found that FoEs appear to be more likely to undertake redundancy and to lay off a higher proportion of the workforce or more workers than DoEs, even after controlling for the degree of adverse impact caused by the recession, firm size, firm history, type of industry and workforce composition. However, the likelihood to make staff redundant is significantly attenuated by the strength of firm-based trade unionism.

Our findings add a new dimension of job insecurity, redundancy, in safeguarding jobs at microeconomic level by taking into account firm’s ownership (Brewster et al., 2015; Ellonen and Nätti, 2015; Otto et al., 2016). The higher job insecurity at FoEs than DoEs may be attributed to a more elastic labour demand (Bernard and Jensen, 2007; Fabbri et al., 2003) and its ‘foot loose’ tendencies (Gorg and Strobl, 2003). To some extent, it confirms the lower employment commitment of FoEs driven by fewer risks involved in large-scale layoffs than DoEs. Such risks include reputational damage, adverse political commentary, local opposition and potential loss of customer base. This reflects the short-term profit-seeking nature of FoEs (Dill et al., 2016) since the long-term concerns of DoEs restrain layoff decisions; for example, if they wish to expand again post-recession, they may well require government support and local population agreement (Jack, 2018). However, there did not appear to be any support for institutional differences between the source country and host county impacting on the redundancy incidence and quantity of layoffs.

More importantly, it shows the moderating effect of union strength when examining a discreet form of job insecurity, redundancy, at FoEs. A negative but not statistically significant relationship between the level of employment protection legislation and job destruction was summarized by Haaland et al. (2003: 18). We empirically examine the influence of the actor to ‘police’ employment protection legislation. Trade unions, as a collective actor, play the main role when members’ employment is threatened. In Table 2, the average of union density – a proxy for union strength (measured by the percentage of employees who are union members) – of FoEs is much higher, 0.21, than that of DoEs, 0.08. Table 3 shows that union strength can curtail the tendency to lay workers off at FoEs. The moderation effect was further explored through the marginal effect (difference-in-difference) of union density on the likelihood to make staff redundant between FoEs and DoEs. In Figure 1, it shows that FoEs are more likely to lay off employees than DoEs when union density is low, but such likelihood declines and even becomes negative with increased union density.

Figure 1.

Marginal effect of union density on the likelihood to carry out redundancies between FoEs and DoEs.

Practical implications

The UK is an open economy where non-UK companies now hold approximately 54% of the UK stock market share since 2012 (ONS, 2015). Successive governments, at least at the rhetorical level, have placed the employment contribution of inbound FDI, at both the regional and national level, as a leading policy priority to promote this type of investment (McDonald et al., 2005). However, shareholders’ interests override those of workers, customers, suppliers, communities and other stakeholders. This was evident in several high profile cases such as when the USA giant Kraft Foods took over Cadburys in 2010 (Jack, 2018). Although the current prime minister, Theresa May, has warned big business that the government would step in where markets failed to produce an economic model that worked for everyone, the discreet form of job insecurity, redundancy, has been overlooked (ESRC, 2010). This study shows that trade unionism is one of the important countervailing forces that can, in certain conditions, safeguard jobs through policing regulations and enforcing collective representation, in particular at MNEs (Pohler and Riddell, 2015). Meanwhile, the source country of the FoEs did not have an effect on job insecurity, suggesting that policymakers do not have to target specific countries for overseas investment.

Limitations of this study and suggestions for future studies

There are a few limitations to this study which need to be addressed. First, the study examined the effect of firm-level institutions on employment practices of FoEs in the host country. To be specific, the influence of trade unions in the UK has been discussed. The national context, sector-specific regulations, occupational differences and management practices are equally important factors that may influence plant closures or employment changes at FoEs (Dill and Jirjahn, 2016; Harris, 2009; Svalund, 2015). We controlled for sector and occupation in the analysis, but the scope of this study does not allow us to explore the abovementioned additional factors. Future study can help to provide insight into the different mechanisms within the institutional theory framework (Michailova and Ang, 2008) and management practices (Dill and Jirjahn, 2016) to explore the employment practices of cross-border businesses.

Second, this research shows trade unions can reduce the occurrence of objective job insecurity, such as layoffs, in the UK. The data, however, did not support the view that the exercise of union power can reduce the extent of redundancies (Tables 4 and 5). In other words, unions can defer, deflect, and sometimes stop altogether the redundancy process through the usual methods available to unions such as collective bargaining, political pressure and proper enforcement of legal regulations. But once the layoff process is underway and the senior managers have decided to accept the risks involved in the union challenges, then the extent of redundancies may not be ameliorated by union activity. Due to the limited information on union strength in the data, we could not explore unions’ job protection strategies and tactics in the microeconomic environment further. This area has been under-researched (Ellonen and Nätti, 2015), and is worth exploring further with regard to the apparent decline of union influence in the UK and elsewhere (Gumbrell-McCormick and Hyman, 2013), and the increase in objective job insecurity at the workplace (Wang et al., 2018).

Third, this article has examined the differences in layoff practices between FoEs and DoEs. Other characteristics of FoEs could determine job insecurity fundamentally, inter alia, mode of entry and the embeddedness of FoEs in the national and regional economy. Also, FoEs (such as joint ventures) involve lower levels of resource commitment (Meyer et al., 2009). While wholly owned subsidiaries (set up on greenfield sites or through acquisition) in foreign locations are likely to enhance the employment benefits of inbound FDI from the host economy perspective (McDonald et al., 2002) and ensure more secure employment (Harris, 2009). The embeddeness of FoEs is another important aspect relating to job security. Studies have examined the effects of local sourcing (Bailey and Driffield, 2007; Williams, 2003), networks and clusters (Dunning, 2000; McDonald and Vertova, 2001), subsidiary and joint venture autonomy (Holm and Pedersen, 2000) on the creation and safeguarding of jobs. The mode of entry and FoEs’ embeddedness are not available in the data set used here, and future studies can explore this issue further and increase our understanding of job insecurity at firm-level (Brewster et al., 2015; Otto et al., 2016).

Conclusions

Against the backdrop of the recent global recession, we examined job insecurity in foreign-owned enterprises with the concern that FoEs, when compared with DoEs, are more ‘foot loose’, face a higher elasticity of labour demand and have less pressure to preserve jobs. Using the WERS 2011 data, we found that foreign-owned firms appear to be more likely to make redundancies and to lay off more staff both in numbers and proportion of their workforce than the equivalent DoEs. This confirms the higher employment volatility at FoEs than DoEs (Bernard and Sjoholm, 2003; Fabbri et al., 2003) and that recessionary conditions may offer a good excuse to shed less productive workers or substitute labour for capital with a minimum of fuss.

Our findings also show that left to their own devices senior managers in FoEs will be more ready to lay off workers in a recession than DoEs in similar circumstances in the UK. In all of this, the major factor holding back compulsory redundancy decisions appears not to be the regulatory framework but the actions of trade unions. Trade unions, when well supported by both members in the firm and national officers, can give pause to the redundancy option by, for example, altering the balance of costs and risks in the decision-making process of senior managers (Pohler and Riddell, 2015). Trade union arguments during the collective bargaining process can highlight alternatives to layoffs, force the application of the correct redundancy regulations, offer better legal advice for their members (Jirjahn, 2017), and use the threat (even if only implied) of industrial action. So we have shown that the redundancy impulse is moderated by union strength at FoEs. This is important in light of the well-documented, continuing decline in numbers, density and influence of British trade unions (Bryson and Forth, 2011) and parallels similar developments in other countries (Gumbrell-McCormick and Hyman, 2013).

Therefore, this study complements the concern about job insecurity (plant closure) caused by increased FDI in the host country by investigating a new and subtle dimension, layoffs, during an economic recession. Our results show that trade unions can alleviate the redundancy decisions at FoEs, although we did not find any significant differences in the layoff of employees by the location of MNEs’ head offices. Our findings offer an insight into the mechanism between the inconclusive relationship observed between MNEs, employment protection legislation and job loss (Haaland et al., 2003; Wagner and Gelübcke, 2012). The study also adds to the debate on the role of trade unions when there is increased objective job insecurity (Angrave et al., 2017; Wang et al., 2018), and sheds light on continuing union activity carried out by workers in MNEs, such as with Uber drivers, Southern Rail and Ryanair pilots in 2018.

Footnotes

Acknowledgements

The authors acknowledge the Workplace Employment Relations Survey (WERS) sponsored by the Department for Business Innovation and Skills, the Economic and Social Research Council, the Advisory, Conciliation and Arbitration Service, the UK Commission for Employment and Skills, and the National Institute of Economic and Social Research. The survey fieldwork was undertaken by the National Centre for Social Research, and the data were distributed by the Data Archive at the University of Essex. None of these organizations bears any responsibility for the authors’ analysis and interpretation of the data.

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Wen Wang

Author biographies

Wen Wang is a Reader in HR Management and Employee Relations at the University of Wolverhampton Business School, UK. Her research pursues organizational resilience through sustainable people management in responding to changes in the business environment. Her recent research publications include: ‘BAME staff and public service motivation: The mediating role of perceived fairness in English local government’ (with Roger Seifert), Journal of Business Ethics, DOI: 10.1007/s10551-018-3953-8 (2018) and others (see her website).

Mark Cook is a Reader in International Business at the University of Wolverhampton Business School, UK. His research interests lie in the areas of UK competitiveness, the internationalization of small firms and foreign direct investment (FDI). In particular he focuses on the determinants of inbound FDI into the UK regions by source country, mode of entry, and the different measures of the size of FDI activity. For his recent research publications, please see his website.

Roger Seifert is Professor of HRM and Industrial Relations at the University of Wolverhampton Business School, and specializes in public sector industrial relations. Recent publications include ‘Race discrimination at work: The moderating role of trade unionism in English local government’ (with Wen Wang) in Industrial Relations Journal, 49(3): 259–277 (2018). For more of his recent publications, please visit his website.

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