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U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or Complements?

19 Pages Posted: 16 Mar 2007  

Ann E. Harrison

University of Pennsylvania - Management Department; National Bureau of Economic Research (NBER)

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Clair Null

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

Critics of globalization claim that firms are being driven by the prospects of cheaper labor and lower labor standards to shift employment abroad. Yet the evidence, beyond anecdotes, is slim. This paper reports stylized facts on the activities of U.S. multinationals at home and abroad for the years 1977 to 1999. We focus on firms in manufacturing and services, two sectors that have received extensive media attention for supposedly exporting jobs. Using firm-level data collected by the Bureau of Economic Analysis (BEA) in Washington, D.C., we report correlations between U.S. multinational employment at home and abroad. Preliminary evidence based on the operations of these multinationals suggests that the sign of the correlation depends on the crucial distinction between affiliates in high-income and low-income countries. For affiliates in high-income countries there is a positive correlation between jobs at home and abroad, suggesting that foreign employment of U.S. multinationals is complementary to domestic employment. For firms that operate in developing countries, employment has been cut in the United States, and affiliate employment has increased. To account for firm size, substitution across firms and entry and exit, we aggregate our data to the industry level. This exercise reveals that the observed "complementarity" between U.S. and foreign jobs has been driven largely by a contraction across all manufacturing sectors. It also reveals that foreign employment in developing countries has substituted for U.S. employment in several highly visible industries, including computers, electronics, and transportation. The fact that there were U.S. jobs lost to foreign affiliates in key sectors, despite broad complementarity in hiring and firing decisions between U.S. parents and their affiliates, helps explain why economists view the impact of globalization on U.S. jobs as benign despite negative news coverage for declining industries.

Suggested Citation

Harrison, Ann E. and McMillan, Margaret and Null, Clair, U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or Complements?. Industrial Relations: A Journal of Economy and Society, Vol. 46, No. 2, pp. 347-365, April 2007. Available at SSRN: https://ssrn.com/abstract=972542 or http://dx.doi.org/10.1111/j.1468-232X.2007.00471.x

Ann E. Harrison

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Margaret McMillan

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

2033 K Street, NW
Washington, DC 20006
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Clair Null (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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