The Labor Market Effects of Offshoring by U.S. Multinational Firms

Abstract

We use firm-level data on U.S. multinationals to show how offshoring affects domestic employment within and across firms. We introduce a new instrument for offshoring: Bilateral Tax Treaties, which reduce the cost of offshore activities. We find substantial heterogeneity in effects. A 10 percent increase in affiliate employment drives a 1.3 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. In contrast, offshoring by vertical multinationals drives declining employment among non-multinationals in the same industry, and firms opening new affiliates exhibit smaller domestic employment growth than those expanding existing affiliates.

Does It Matter Where You Invest? The Impact of FDI on Domestic Job Creation and Destruction

“…There is a wide body of literature on the impact of outward FDI on the home labor market using firm/establishment-level data. Existing studies find mixed evidence (Brainard and Riker, 1997;Desai et al, 2009;Muendler and Becker, 2010;Kovak et al, 2018). 7 Using data on United States (US) multinationals, Desai et al (2009) and Kovak et al (2018) find a positive effect of affiliate employment on parent employment.…”

“…Existing studies find mixed evidence (Brainard and Riker, 1997;Desai et al, 2009;Muendler and Becker, 2010;Kovak et al, 2018). 7 Using data on United States (US) multinationals, Desai et al (2009) and Kovak et al (2018) find a positive effect of affiliate employment on parent employment. Contrastingly, Muendler and Becker (2010) use data on German multinationals to estimate the labor demand system and find negative elasticities of home employment with respect to foreign wage.…”

Outsourcing: A Case of Shared Mental Models in Conflict

“…The effects of increased prices in complementary intermediate imports overwhelmed any currency advantages for UK workers and exporters in those sectors. Kovack et al (2017) find a mixed set of domestic employment effects after analyzing firm‐level data on U.S. multinationals and outsourcing. Hummels, et al (2018) recently completed a detailed review of the empirical literature on outsourcing, concluding that outsourcing’s effects on wages do vary by occupation.…”

Thinking inside the box: Optimal policy towards a footloose R&D‐intensive firm

“…Seminal theoretical contributions include Antras et al (2006) and Grossman and Rossi‐Hansberg (2008). Several authors have examined the effects of offshoring on the domestic labor market (e.g., Crinò, 2009; Ebenstein et al, 2014; Kovak et al, 2018; Mion & Zhu, 2013; Monarch et al, 2017; Wright, 2014). Most of this literature examines the effects of offshoring on production, exports and in particular on home labor market effects.…”