Offshoring Jobs? Multinationnals and U.S. Manufacturing Employment

Abstract

Critics of globalization claim that U.S. manufacturing firms are being driven by the prospects of cheaper labor to shift employment abroad. Yet the evidence, beyond anecdotes, is slim. Using firm-level data collected by the U.S. Bureau of Economic Analysis (BEA), we estimate the impact on U.S. manufacturing employment of foreign employment by U.S. firms, controlling for intra-firm trade and technological change. Using several different approaches to estimating labor demand, we find that employment in low income countries substitutes for employment at home. We also find that employment in high income affiliates is complementary with U.S. employment. These results suggest that the location of foreign affiliates determines the employment effects of offshoring. U.S. capital investments in both high and low income affiliates are associated with a downward shift in labor demand for U.S. manufacturing enterprises. Finally, technological change and intra-firm trade are also important determinants of U.S. manufacturing employment.