Working Paper: NBER ID: w2760
Authors: Irving B. Kravis; Robert E. Lipsey
Abstract: Given the level of its production in the U.S., a firm that produces more abroad tends to have fewer employees in the U.S. and to pay slightly higher salaries and wages to them. The most likely explanation seems to be that the larger a firm's foreign production, the greater its ability to allocate the more labor-intensive and less skill-intensive portions of its activity to locations outside the United States. This relationship is stronger among manufacturing firms than among service industry firms, probably because services are less tradable than manufactured goods or components, and service industries may therefore be less able to break up the production process to take advantage of differences in factor prices.
Keywords: foreign direct investment; domestic employment; multinational firms; labor intensity; skill composition
JEL Codes: F23; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased foreign production by multinational firms (F23) | Reduction in domestic employment levels (J63) |
| Increased foreign production by multinational firms (F23) | Reduction in domestic output (F69) |
| Increased foreign production by multinational firms (F23) | Substitution of imports from affiliates for U.S. production (F23) |
| Increased foreign production by multinational firms (F23) | Crowding out of domestic investment (E22) |
| Increased foreign production by multinational firms (F23) | Fewer employees in the U.S. (J63) |
| Production by minority-owned affiliates (L39) | Increased parent employment (J29) |
| Increased foreign production (F29) | Average skill level and compensation of domestic employees may rise (J31) |
| Foreign affiliate activity (F23) | Support U.S. exports (F10) |