US MULTINATIONAL ACTIVITY ABROAD AND US JOBS: SUBSTITUTES OR

COMPLEMENTS?

By: Ann E. Harrison, Margaret S. McMillan and Clair Null. 2007

Presenters: Emma, Ben, Roy, and Cyntia

To resolve uncertainty in regards to jobs in the US, due to multinational companies outsourcing employment

to third world countries

GOAL OF THE STUDY

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Debate regarding increased unemployment in the US due to

outsourcing

Local reallocation vs Outsourcing

BACKGROUND

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Bureau of Economic Analysis (BEA)• Firm level data on employment, wages, net income and investment from 1977-1999

Classification Data1. Standard Industrial Classification (SIC)

• Studied from 1972-1987

2. North American Industrial Classification System (NAICS)

• Began in 1997

DATA AND METHODS

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• Industry level data helps bypass firm level data issues, such as:• Effect of entry and exit of firms in

different countries

• The size of each firm being weighted equally

• Consumer demand going between several different firms

DATA AND METHODS

• 3 million jobs in manufacturing removed from US market•  0.5 to 0.75 million jobs gained in low

income affiliate countries

• Employment transfer possibly due to low wage costs in affiliate countries

KEY RESULTS

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KEY RESULTS

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• Main industries outsourcing manufacturing jobs include: • Computers

• Electronics

• Transportation

• Machinery

• Chemical

KEY RESULTS

KEY RESULTS

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KEY RESULTS

• Service industries have a positive correlation between low income affiliate countries and parent company country• Employment in the service industries

increased by 4 million employees in the US, compared to 3 million jobs lost in manufacturing industries

KEY RESULTS

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KEY RESULTS

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• Real wages rise in high income countries &decrease in low income countries

• However, labour cost’s share of income has fallen in all of the US, low income countries, and high-income countries

• Possibly due to technological change which allows exchange of capital for labour

KEY RESULTS

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POLICY IMPLICATIONS

• Main policy which can be implemented is a requirement for parent companies to hire a certain percentage of employees within their home country

• This will likely result in a strong effect in manufacturing industries, as most jobs are outsourced from this industry

QUESTIONS?