The Effects of Foreign Multinationals on Workers and Firms in the United States

77 Pages Posted: 20 Aug 2019 Last revised: 13 Jun 2022

See all articles by Bradley Setzler

Bradley Setzler

University of Chicago

Felix Tintelnot

University of Chicago Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2019

Abstract

Governments go to great lengths to attract foreign multinationals because they are thought to raise the wages paid to their employees (direct effects) and to improve outcomes at local domestic firms (indirect effects). We construct the first U.S. employer-employee dataset with foreign ownership information from tax records to measure these direct and indirect effects. We find the average direct effect of a foreign multinational firm on its U.S. workers is a 7 percent increase in wages. This premium is larger for higher skilled workers and for the employees of firms from high GDP per capita countries. We find evidence that it is membership in a multinational production network—instead of foreignness—that generates the foreign firm premium. We leverage the past spatial clustering of foreign-owned firms by country of owner-ship to identify the indirect effects. An expansion in the foreign multinational share of commuting zone employment substantially increases the employment, value added, and—for higher earning workers—wages at local domestic-owned firms. Per job created by a foreign multinational, our estimates suggest annual gains of 13,400 USD to the aggregate wages of local incumbents, two-thirds of which are from indirect effects. Our estimates suggest that—via mega-deals for subsidies from local governments—foreign multinationals are able to extract a sizable fraction of the local surplus they generate.

Suggested Citation

Setzler, Bradley and Tintelnot, Felix, The Effects of Foreign Multinationals on Workers and Firms in the United States (August 2019). NBER Working Paper No. w26149, Available at SSRN: https://ssrn.com/abstract=3439153

Bradley Setzler (Contact Author)

University of Chicago ( email )

Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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