Multinationals, Offshoring, and the Decline of U.S. Manufacturing

84 Pages Posted: 8 Mar 2017

See all articles by Christoph Boehm

Christoph Boehm

University of Texas at Austin

Aaron Flaaen

Board of Governors of the Federal Reserve System

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: March 1, 2017

Abstract

We provide three new stylized facts that characterize the role of multinationals in the U.S. manufacturing employment decline, using a novel microdata panel from 1993-2011 that augments U.S. Census data with firm ownership information and transaction-level trade. First, over this period, U.S. multinationals accounted for 41% of the aggregate manufacturing decline, disproportionate to their employment share in the sector. Second, U.S. multinational-owned establishments had lower employment growth rates than a narrowly-defined control group. Third, establishments that became part of a multinational experienced job losses, accompanied by increased foreign sourcing of intermediates by the parent firm. To establish whether imported intermediates are substitutes or complements for U.S. employment, we develop a model of input sourcing and show that the employment, impact of foreign sourcing depends on a key elasticity of firm size to production efficiency. Structural estimation of this elasticity finds that imported intermediates substitute for U.S. employment. In general equilibrium, our estimates imply a sizable manufacturing employment decline of 13%.

Keywords: Multinational Firms, Offshoring, Outsourcing, Manufacturing Employment

JEL Classification: F14, F16, F23

Suggested Citation

Boehm, Christoph and Flaaen, Aaron and Pandalai-Nayar, Nitya, Multinationals, Offshoring, and the Decline of U.S. Manufacturing (March 1, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP-17-22, Available at SSRN: https://ssrn.com/abstract=2928253 or http://dx.doi.org/10.2139/ssrn.2928253

Christoph Boehm (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Aaron Flaaen

Board of Governors of the Federal Reserve System ( email )

20th and Constitution Ave., NW
Washington, DC 20551
United States
202-973-7338 (Phone)

HOME PAGE: http://www.federalreserve.gov/econresdata/aaron-b-flaaen.htm

Nitya Pandalai-Nayar

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

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