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Offshoring Jobs? Multinationals and US Manufacturing Employment

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  • Ann Harrison
  • Margaret McMillan

Abstract

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 Economics 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 show that the motive for offshoring and consequently the location of offshore activity significantly affects the impact of offshoring on parent employment. However, for firms which do significantly different tasks at home and abroad, foreign and domestic employment are complements. These offsetting effects may be combined to show that offshoring is associated with a quantitatively small decline in manufacturing employment. These results are robust to a variety of estimation techniques and robustness tests.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0741.

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Date of creation: 2009
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Handle: RePEc:tuf:tuftec:0741

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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  2. Gregory Mankiw, N. & Swagel, Phillip, 2006. "The politics and economics of offshore outsourcing," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 1027-1056, July.
  3. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content Of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1279-1333, November.
  4. Marc-Andreas Muendler & Sascha O. Becker, 2006. "Margins of Multinational Labor Substitution," CESifo Working Paper Series 1713, CESifo Group Munich.
  5. Revenga, Ana L, 1992. "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 255-84, February.
  6. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
  7. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and Domestic Economic Activity," NBER Working Papers 11717, National Bureau of Economic Research, Inc.
  8. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
  9. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
  10. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
  11. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  12. David A. Riker & S. Lael Brainard, 1997. "U.S. Multinationals and Competition from Low Wage Countries," NBER Working Papers 5959, National Bureau of Economic Research, Inc.
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