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[IWS] CRS: OUTSOURCING AND INSOURCING JOBS IN THE U.S. ECONOMY: EVIDENCE BASED ON FOREIGN INVESTMENT DATA [21 June 2013]

IWS Documented News Service

_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

________________________________________________________________________

 

Congressional Research Service (CRS)

 

Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign Investment Data

James K. Jackson, Specialist in International Trade and Finance

June 21, 2013

http://www.fas.org/sgp/crs/misc/RL32461.pdf

[full-text, 56 pages]

 

Summary

The impact of foreign direct investment on U.S. employment continues to attract national

attention. While local communities compete with one another for investment projects, many of

the residents of those communities fear losing their jobs as U.S. companies seek out foreign

locations and foreign workers to perform work that traditionally has been done in the United

States, generally referred to as outsourcing. Some observers suggest that current U.S. experiences

with outsourcing are different from those that have preceded them and that this merits legislative

actions by Congress to blunt the economic impact of these activities. Other observers argue that

investing abroad by U.S. multinational companies impedes the growth of new jobs in the

economy and thwarts the nation’s investments in high technology sectors. Some opponents also

argue that mid-career workers who lose good-paying manufacturing and service-sector jobs likely

will never recover their standard of living.

 

Economists and others generally argue that free and unimpeded international flows of capital

ultimately have a positive impact on both domestic and foreign economies. Direct investment is

unique among international capital flows because it adds permanently to the capital stock and

skill set of a nation, but it also challenges the general theory of capital flows because of the

presence of strong cross-border and intra-industry investment. Supporters contend that to the

extent that foreign investment shifts jobs abroad, it is a minor component of the overall economic

picture and that it is offset somewhat by the investment of foreign firms in the U.S. economy

(referred to as insourcing), which supports existing jobs and creates new jobs in the economy.

 

Broad, comprehensive data on U.S. multinational companies generally lag behind current events

by two years and were not developed to address the issue of jobs outsourcing. Many economists

argue, however, that there is little evidence to date to support the notion that the overseas

investment activities of U.S. multinational companies play a significant role in the rate at which

jobs are created in the U.S. economy. Instead, they argue that the source of job creation in the

economy is rooted in the combination of macroeconomic policies the nation has chosen, the rate

of productivity growth, and the availability of resources. This report addresses these issues by

analyzing the extent of direct investment into and out of the economy, the role such investment

plays in U.S. trade, jobs, and production, and the relationship between direct investment and the

broader economic changes that are occurring in the U.S. economy.

 

Contents

Overview.......................................................................................................................................... 1

U.S. and Foreign Multinational Companies .................................................................................... 5

Employment .............................................................................................................................. 7

Employment Trends ................................................................................................................. 11

Employment by Sector and Area ............................................................................................. 12

Gross Product ................................................................................................................................. 17

U.S. Multinational Companies ................................................................................................ 18

Foreign-Owned Firms ............................................................................................................. 20

Cyclical vs. Structural Changes ..................................................................................................... 21

Trade .............................................................................................................................................. 30

Sales ............................................................................................................................................... 36

Sales of Services ...................................................................................................................... 38

Research and Development ........................................................................................................... 40

Global Value Chains ...................................................................................................................... 41

Why Firms Invest Abroad .............................................................................................................. 45

Ownership-Specific Advantages.............................................................................................. 47

Location Advantages ............................................................................................................... 47

Commercial Benefits ............................................................................................................... 49

Conclusion ..................................................................................................................................... 50

 

Figures

Figure 1. Foreign Direct Investment in the United States and U.S. Investment Abroad, Annual Flows 1990-2012 .......................................................... 3

Figure 2. Inward and Outward Global Direct Investment Position, By Major Area, 2011 ............. 4

Figure 3. Index of Employment of U.S. Parent Companies and Their Foreign Affiliates, 1992-2010 (1990 = 100) ........................................................ 10

Figure 4. Employment of the Foreign Affiliates of U.S. Parent Companies as a Share of the Total Employment of U.S. Multinational Companies, 1985-2010 ........... 12

Figure 5. U.S. Direct Investment Position Abroad and Foreign Direct Investment Position in the United States, Cumulative Position by Country, 2011 ................. 15

Figure 6. Employment of U.S. Foreign Affiliates Abroad and Affiliates of Foreign Firms in the U.S., by Country or Region, 2010 .......................................... 16

Figure 7. Average Annual Percent Change in Gross Product of U.S. Parent Companies and Their Foreign Affiliates, Selected Periods ............................... 24

Figure 8. Average Annual Percent Change in Employment of U.S. Parent Companies and Their Foreign Affiliates, Selected Periods .................................... 26

Figure 9. Average Annual Percent Change in Manufacturing Gross Product of U.S. Parent Companies and Their Foreign Affiliates, Selected Periods ................ 27

Figure 10. Average Annual Percent Change in Manufacturing Employment of U.S. Parent Companies and Their Foreign Affiliates, Selected Periods ............................ 28

Figure 11. Intra-Firm MNC Trade as a Share of Total U.S. Exports and Imports, 1990- 2010 ................................................................................... 32

 

Tables

Table 1. Global Annual Inflows of Foreign Direct Investment, By Major Area .............................. 5

Table 2. Select Data on U.S. Multinational Companies and on Foreign Firms Operating in the United States, 2010 ................................. 6

Table 3. Gross Product and Manufacturing Gross Product by U.S. Multinational Companies, 1994-2010 ........................................... 7

Table 4. Employment of U.S. Multinational Companies and the Affiliates of Foreign Firms, 1992-2010 ................................................................ 9

Table 5. Employment of Non-Bank U.S. Foreign Affiliates by Major Sector and Area, 2008-2010 ............................................................................. 13

Table 6. Gross Product of U.S. Parent Companies and Their Majority-Owned Foreign Affiliates ........................................................................... 18

Table 7. U.S. Direct Investment Abroad; Investment Outflows for Selected Regions and Countries, 2007-2011................................................ 19

Table 8. Average Annual Percent Change in Gross Product and Employment of U.S. Parent Companies and Their Foreign Affiliates, Selected Industries, Selected Periods ............. 25

Table 9. Changes in Gross Product and Employment Among U.S. Parent Companies and Their Foreign Affiliates for Selected Industries ......................... 30

Table 10. Multinational Corporations’ Intra-Firm Exports of U.S. Goods, 1992-2010 ................. 33

Table 11. Exports Shipped by U.S. Parent Companies to Their Foreign Affiliates: Intended Use, 2009 ................................................................. 34

Table 12. Multinational Corporations’ Intra-Firm Imports of U.S. Goods, 1992-2010 ................. 36

Table 13. Sales of Goods and Services by U.S. Foreign Affiliates by Destination and Industry, 2010 ................................................................ 37

Table 14. Sales of Services by U.S. Foreign Affiliates by Destination and Industry, 2010 ........... 39

Table 15. Sales of Services by U.S. Foreign Affiliates, Average Annual Rates of Change for Selected Periods .............................................................. 40

Table 16. Expenditures on Research and Development by U.S. Multinational Firms and by the Affiliates of Foreign Firms Operating in the United States .................... 41

Table 17. Sources of Value Added in Global Value Chains ........................................................... 45

 

Contacts

Author Contact Information........................................................................................................... 52

Acknowledgments ......................................................................................................................... 52

 

 

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

 




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