FDI location and size: Does employment protection legislation matter?

This paper investigates the effect of Employment Protection Legislations for regular and temporary employment on Japanese firm-level FDI into Western Europe during the late 1980s and late 1990s. We find employment protection does matter in the location choice of Japanese investors and it has an adverse effect on FDI-related employment size. There is a clear direct impact from legislation on regular employment while the impact of the legislation on temporary employment is much weaker. Moreover, only the regulation of temporary work agencies matters and not that of fixed-term contracts. In the 1990s, most European countries focused on increasing flexibility for temporary employment while sometimes reinforcing protection on regular employment, a policy which had no clear beneficial impact in terms of attracting job creating foreign direct investment.