Offshoring Jobs? Multinationals and US Manufacturing Employment

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.