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Multinationals Offshoring, and the Decline of U.S. Manufacturing

January 2017

Working Paper Number:

CES-17-22

Abstract

We provide three new stylized facts that characterize the role of multinationals in the U.S. manufacturing employment decline, using a novel microdata panel from 1993-2011 that augments U.S. Census data with firm ownership information and transaction-level trade. First, over this period, U.S. multinationals accounted for 41% of the aggregate manufacturing decline, disproportionate to their employment share in the sector. Second, U.S. multinational-owned establishments had lower employment growth rates than a narrowly-defined control group. Third, establishments that became part of a multinational experienced job losses, accompanied by increased foreign sourcing of intermediates by the parent firm. To establish whether imported intermediates are substitutes or complements for U.S. employment, we develop a model of input sourcing and show that the employment impact of foreign sourcing depends on a key elasticity of firm size to production efficiency. Structural estimation of this elasticity finds that imported intermediates substitute for U.S. employment. In general equilibrium, our estimates imply a sizable manufacturing employment decline of 13%.

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:
market, production, manufacturing, industrial, substitute, import, export, manufacturer, employ, labor, monopolistically, sector, endogenous, multinational, foreign, regressors, gdp, supplier, importer, exporters multinationals, sourcing, multinational firms

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:
Annual Survey of Manufactures, Center for Economic Studies, Bureau of Economic Analysis, Longitudinal Business Database, Department of Economics, Michigan Institute for Teaching and Research in Economics, Census of Manufacturing Firms, Board of Governors, University of Michigan, Longitudinal Firm Trade Transactions Database

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