Foreign Production by U.S. Firms and Parent Firm Employment

Despite the persistent fears that production abroad by U.S. multinationals reduces employment at home, there has, in fact, been almost no aggregate shift of production or employment to foreign countries. Some continuing shifts to foreign locations by U.S. manufacturing firms have been largely offset by shifts into the United States by foreign manufacturing multinationals. An analysis of individual firm data indicates that higher levels of production in developing countries by a firm are associated with lower employment at home for a given level of production. The reason is that U.S. multinationals tend to allocate their more labor-intensive production to developing country affiliates and retain more capital-intensive and skill-intensive operations in the United States.