Domestic Employment Growth Research Articles

Outward FDI and Domestic Employment Growth: A Penrosean Coordination Challenges Framework

Research to date has only rarely studied firm-specific reasons that influence how multinational enterprises grow employment in their home country after they make a foreign direct investment (FDI). We apply a Penrosean perspective to understand post-investment coordination challenges and develop novel theory about the domestic employment effects of the FDI’s relative size. Specifically, we argue that MNEs’ home-country employment growth is greater for relatively larger projects because of constraints in human resources who can attend to an increased amount of coordination challenges. Further, we suggest that MNEs’ establishment-mode choice, their regional orientation, and their degree of state ownership co-shape that relationship. We find support for our hypotheses analyzing 409 projects by MNEs from 13 countries.

Foreign direct investment and onshore employment dynamics: Evidence from German firms with affiliates in the Czech Republic

AbstractIn this paper, we revisit questions about the onshore employment effects of firms that conduct foreign direct investment (FDI) in countries with substantially lower average wages. Our results derive from the use of rich administrative records on the universe of employees in German multinational enterprises (MNEs) that were active in the Czech Republic in 2010. Compared with former studies, the unique data set in this study includes a much higher fraction of small‐ and medium‐sized firms and leads to strikingly different results for service MNEs. Applying coarsened exact matching for firms and an event‐study design, we show that the domestic employment growth of MNEs decreases relative to that of non‐MNEs and that the affected workers are those with low or medium educational attainment in the manufacturing sector and with medium or high educational attainment in the service sector. Regarding workers’ tasks, our results do not show that FDI affects routine jobs beyond a worker's skill level.

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

Abstract 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.

Go Out for Jobs? Foreign Investment Projects and their Impact on Firms’ Domestic Employment Growth

Many governments, especially those of emerging economies, have policies in place to stimulate their firms to internationalize and engage in outward foreign direct investment (OFDI). Although it may serve interests other than that of economic development, it is unclear to what extent it contravenes policy aimed at raising employment, an area particularly important for countries if they are to make progress on sustainable development goals. This study looks at three dimensions of OFDI promotion policies typically adopted by emerging economy governments, as they encourage firms to choose acquisitions over greenfield investments, and support large firms with considerable presence in a region of interest as their national champions. I study how these firm- and investment-related characteristics affect how emerging market multinationals grow their own domestic employment after undertaking a specific foreign investment project, whereby I draw on the resource-based view and agency theory to formulate hypotheses. Analyzing detailed data pertaining to 409 such projects by firms from 13 emerging economies, this study finds support for these hypotheses. An important implication is that key elements of OFDI promotion efforts such as China’s ‘Go Out’ policy tend to have negative consequences for domestic employment, thus revealing important policy trade-offs.

The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies

Estimating the causal effect of offshoring on domestic employment is difficult because of the inherent simultaneity of multinational firms' domestic and foreign affiliate employment decisions. In this paper, we resolve this identification problem using variation in Bilateral Tax Treaties (BTTs), which reduce the effective cost of offshore activity by mitigating double taxation. We derive a panel difference-in-differences research design from a standard model of multinational firms, demonstrating the simultaneity problem and showing how to resolve it using BTTs as an instrument for offshore employment. We confirm that new treaty implementation is uncorrelated with existing employment trends, and use Bureau of Economic Analysis data on U.S. multinational firms to measure the domestic employment effects of offshore activity. Overall, we find modest positive effects of offshore activity on domestic employment. A 10 percent BTT-induced increase in affiliate employment drives a 1.8 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. Underlying these results is substantial heterogeneity based on offshoring margin and firm organizational structure. For example, increased foreign affiliate activity in vertically oriented multinational firms drives declining employment among non-multinationals in the same industry, and multinational firms opening new affiliates exhibit much smaller domestic employment growth than those expanding existing affiliates. Throughout the analysis, OLS estimates are much larger than the IV estimates, consistent with upward simultaneity bias. Overall, our results indicate that greater offshore activity raises net employment by U.S. firms, albeit with underlying job loss and reallocation of workers.

Globalisation and employment in the OECD

This article reviews some of the possible changes that may occur in the national labour markets of many OECD countries as a result of the internationalisation of production by multinational companies, with a particular focus on the impact of outward foreign direct investment (FDI) from OECD countries on employment in the home country of the investing firms. Existing studies suggest that the overall impact of trade and the internationalisation of production on aggregate labour market outcomes has been comparatively small, although particular skill and occupational groups have been affected more strongly. The empirical findings in the paper suggest that the aggregate employment impact of outward FDI varies across industries and countries. For manufacturing industries with strong commercial links with the non-OECD economies, there is evidence that domestic employment has become more sensitive to movements in domestic labour costs. At the country level, the growth of outward investment is found to have a significant positive effect on domestic employment growth in the United States. In contrast, there is a negative association in Japan, especially from outward investment in China.

State economic growth and international export orientation

This paper examines the relationship between the degree of state international export orientation and US state industrial growth rates. Both export orientation variables as well as domestic factors were used to analyse the extent of their effect on state industrial growth from 1977 to 1987. The results indicate that state export promotion expenditures were not significant in influencing domestic employment growth, while the variable was negatively correlated with export employment growth. However, a high proportion of exports to total shipments in the initial year, was significant in explaining state industrial growth rates. An important result was that states exporting to growing regions experienced higher growth rates, indicating that world demand influences state economic growth. Furthermore, the domestic market potential had a strong positive influence on all measures of growth including the export sector, providing support for the notion that US economic growth is largely driven by the domestic market. A surprising result was that relative capital endowment was not significantly correlated with growth in the export sector, while it was negatively correlated with domestic and total employment growth rates.