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

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% increase in affiliate employment drives a 1.3% 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 nonmultinationals in the same industry, and firms opening new affiliates exhibit smaller domestic employment growth than those expanding existing affiliates.