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Multinational Production and Innovation in Tandem
October 2024
Working Paper Number:
CES-24-64
Multinational firms colocate production and innovation by offshoring them to the same host country or region. In this paper, I examine the determinants of multinational firms' production and innovation locations. Exploiting plausibly exogenous variations in tariffs, I find complementarities between production and innovation within host countries and regions. To evaluate manufacturing reshoring policies, I develop a quantitative multicountry offshoring location choice model. I allow for rich colocation benefits and cross-country interdependencies and prove supermodularity of the model to solve this otherwise NP-hard problem. I find the effects of manufacturing reshoring policies are nonlinear, contingent upon firm heterogeneity, and they accumulate dynamically.
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Outsourcing Dynamism
December 2023
Working Paper Number:
CES-23-64
This paper investigates the increasing importance of domestic outsourcing in U.S. manufacturing. Under domestic outsourcing, the agency is the employer of record for temporary workers, though they perform their tasks at the client business' premises. On a yearly basis, one in two manufacturing plants hires at least some of its workers through a temporary help agency. Furthermore, domestic outsourcing is becoming increasingly more important: the average share of revenue spent on such arrangements has gone up by 85 percent since 2006. We develop a methodology to transform reported expenses on temporary and leased workers into plant-level outsourced employment counts, using administrative data on the U.S. manufacturing sector. We find that domestic outsourcing is an important margin of adjustment that plants use to modify their workforce in response to productivity shocks. Plant-level outsourced employment adjusts more quickly and is twice as responsive as payroll employment. These micro implications have significant aggregate consequences. Without taking reallocations in outsourced employment into account, the measured pace at which jobs reallocate across workplaces is underestimated. On average, we omit the equivalent of 15 percent of payroll employment reallocations in each year. However, outsourced employment churns at a much higher rate compared to its payroll counterpart. Therefore, the omission of outsourced reallocations can rationalize 37 percent of the secular decline in the aggregate job reallocation rate. Lastly, the extent of mismeasurement varies with the business cycle; falling in downturns and increasing in upturns implying that the speed of economic recovery is underestimated.
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The Changing Firm and Country Boundaries of US Manufacturers in Global Value Chains
July 2023
Working Paper Number:
CES-23-38
This paper documents how US firms organize goods production across firm and country boundaries. Most US firms that perform physical transformation tasks in-house using foreign manufacturing plants in 2007 also own US manufacturing plants; moreover manufacturing comprises their main domestic activity. By contrast, 'factoryless goods producers' outsource all physical transformation tasks to arm's-length contractors, focusing their in-house efforts on design and marketing. This distinct firm type is missing from standard analyses of manufacturing, growing in importance, and increasingly reliant on foreign suppliers. Physical transformation 'within-the-firm' thus coincides with substantial physical transformation 'within-the-country,' whereas its performance 'outside-the-firm' often also implies 'outside-the-country.' Despite these differences, factoryless goods producers and firms with foreign and domestic manufacturing plants both employ relatively high shares of US knowledge workers. These patterns call for new models and data to capture the potential for foreign production to support domestic innovation, which US firms leverage around the world.
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A Portrait of U.S. Factoryless Goods Producers
October 2018
Working Paper Number:
CES-18-43
This paper evaluates the U.S. Census Bureau's most recent data collection efforts to classify business entities that engage in an extreme form of production fragmentation called 'factoryless' goods production. 'Factoryless' goods-producing entities outsource physical transformation activities while retaining ownership of the intellectual property and control of sales to customers. Responses to a special inquiry on the incidence of purchases of contract manufacturing services in combination with data on production inputs and outputs, intellectual property, and international trade is used to identify and document characteristics of 'factoryless' firms in the U.S. economy.
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New Perspectives on the Decline of U.S.
Manufacturing Employment
April 2018
Working Paper Number:
CES-18-17
We use relatively unexplored dimensions of US microdata to examine how US manufacturing employment has evolved across industries, rms, establishments, and regions. We show that these data provide support for both trade- and technology-based explanations of the overall decline of employment over this period, while also highlighting the di-culties of estimating an overall contribution for each mechanism. Toward that end, we discuss how further analysis of these trends might yield sharper insights.
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Firm Reorganization, Chinese Imports, and US Manufacturing Employment
January 2017
Working Paper Number:
CES-17-58
What is the impact of Chinese imports on employment of US manufacturing firms? Previous papers have found a negative effect of Chinese imports on employment in US manufacturing establishments, industries, and regions. However, I show theoretically and empirically that the impact of offshoring on firms, which can be thought of as collections of establishments ' differs from the impact on individual establishments - because offshoring reduces costs at the firm level. These cost reductions can result in firms expanding their total manufacturing employment in industries in which the US has a comparative advantage relative to China, even as specific establishments within the firm shrink. Using novel data on firms from the US Census Bureau, I show that the data support this view: US firms expanded manufacturing employment as reorganization toward less exposed industries in response to increased Chinese imports in US output and input markets allowed them to reduce the cost of production. More exposed firms expanded employment by 2 percent more per year as they hired more (i) production workers in manufacturing, whom they paid higher wages, and (ii) in services complementary to high-skilled and high-tech manufacturing, such as R&D, design, engineering, and headquarters services. In other words, although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms. Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and nonmanufacturing jobs than non-exposed firms.
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Outsourced R&D and GDP Growth
March 2016
Working Paper Number:
CES-16-19
Endogenous growth theory holds that growth should increase with R&D. However coarse comparison between R&D and US GDP growth over the past forty years indicates that inflation scientific labor increased 2.5 times, while GDP growth was at best stagnant. The leading explanation for the disconnect between theory and the empirical record is that R&D has gotten harder. I develop and test an alternative view that firms have become worse at it. I find no evidence R&D has gotten harder. Instead I find firms' R&D productivity declined 65%, and that the main culprit in the decline is outsourced R&D, which is unproductive for the funding firm. This offers hope firms' R&D productivity and economic growth may be fairly easily restored by bringing outsourced R&D back in-house.
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Allocation of Company Research and Development Expenditures to Industries Using a Tobit Model
November 2015
Working Paper Number:
CES-15-42
This paper uses Census microdata and a regression-based approach to assign multi-division firms' pre-2008 Research and Development (R&D) expenditures to more than one industry. Since multi-division firms conduct R&D in more than one industry, assigning R&D to corresponding industries provides a more accurate representation of where R&D actually takes place and provides a consistent time-series with the National Science Foundation R&D by line of business information. Firm R&D is allocated to industries on the basis of observed industry payroll, as befits the historic importance of payroll in Census assignments of firms to industry. The results demonstrate that the method of assigning R&D to industries on the basis of payroll works well in earlier years, but becomes less effective over time as firms outsource their manufacturing function.
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Customer-Employee Substitution: Evidence from Gasoline Stations*
January 2015
Working Paper Number:
CES-15-45R
We document the adoption of self-service pumps in U.S. gasoline stations from 1977 to 1992. Using establishment-level data from the Census of Retail Trade over this period, we show that self-service stations employ approximately one quarter fewer attendants per pump, all else equal. The work done by these attendants has shifted to customers, biasing upwards conventional measures of productivity growth.
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THE TRADABILITY OF SERVICES: GEOGRAPHIC CONCENTRATION AND TRADE COSTS
March 2014
Working Paper Number:
CES-14-03
We develop a methodology for estimating the 'tradability' of goods and services using data on U.S. establishments. Our results show that the average service industry is less tradable than the average manufacturing industry. However, there is considerable within-sector variation in estimated tradability and many service industries are as tradable as manufacturing. Tradable service industries account for a significant share of economic activity and workers employed in those industries have relatively high average wages. Counterfactual analysis indicates that the potential welfare gains from policy liberalization in service trade are of the same order of magnitude as liberalization in the manufacturing sector.
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