Outward FDI and home country employment in USA manufacturing industries

Abstract

Considerable attention has been focused on how the ‘offshoring’ practices of multinational firm’s impact domestic employment within home countries. Although few definitive conclusions have emerged to date, empirical work often distinguishes international outsourcing per se from the transfer of activities to foreign subsidiaries. Much of the existing evidence is limited to measuring employment effects at parent firms, thereby ignoring impacts on the broader labour market within the home industry. The present research concerns how outward FDI by US-based multinationals, as manifested by an expanded role of foreign affiliates, affects home employment. A standard employment growth model is applied to the domestic industries of parent firms, avoiding problems encountered by focusing solely on firm-level effects. This approach allows complementarity and substitutability effects that occur between domestic firms to be internalised, revealing the net impact on total industry employment. Findings from the empirical exercise offer little support for the contention that employment growth within domestic industries necessarily suffers as multinationals increasingly rely on foreign affiliates.