Outsourcing Jobs? Multinationals and US Employment / Ann E. Harrison, Margaret S. McMillan.

Format:

Book

Author/Creator:

Harrison, Ann E.

Contributor:

McMillan, Margaret Stokes.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12372.

NBER working paper series no. w12372

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

Critics of globalization claim that US manufacturing firms are being driven to shift employment abroad by the prospects of cheaper labor. Others argue that the availability of low-wage labor has allowed US based firms to survive and even prosper. Yet evidence for either hypothesis, beyond anecdotes, is slim. Using firm-level data collected by the US Bureau of Economic Analysis (BEA), we estimate the impact on US manufacturing employment of changes in foreign affiliate wages, controlling for changing demand conditions and technological change. We find that the evidence supports both perspectives on globalization. For firms most likely to perform the same tasks in foreign affiliates and at home ("horizontal" foreign investment), foreign and domestic employees appear to be substitutes. For these firms, lower wages in affiliate locations are associated with lower employment in the US. However, for firms which do significantly different tasks at home and abroad ("vertical" foreign investment), foreign and domestic employment are complements. For vertical foreign investment, lower wages abroad are associated with higher US manufacturing employment. These offsetting effects may be combined to show that offshoring is associated with a quantitatively small decline in manufacturing employment. Other factors, such as declining prices for consumer goods, import competition, and falling prices for investment goods (which substitute for labor) play a more important role.

Notes:

July 2006.

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