FindingAug 19, 2019

The Effects of Foreign Multinationals on Workers and Firms in the United States

Bradley Setzler, Felix Tintelnot
The typical worker earns 7% more at the average foreign multinational than at the average domestic firm, and every one job created by a foreign multinational adds about 0.42 jobs and $91,000 in value added at domestic firms in the same commuting zones.
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Figure 1: The Spatial Distribution of Employment at Foreign Firms
Notes: The two figures display spatial variation in employment at foreign-owned firms observed in the tax data for the workers sample of interest. In the first figure, the share of workers employed at foreign-owned firms is plotted in 2001 for each commuting zone. In the second figure, changes from 2001 to 2015 in the share of employment at foreign-owned firms are plotted by commuting zone.

Local governments often try to lure foreign multinationals to their cities and counties. Employing a novel dataset, the authors investigate the direct effects that foreign multinationals have on their own employees, as well as the indirect effects that these firms have on local businesses and their employees.

Direct Effects: In total, the amount of wages paid by foreign multinationals is 25 percent greater than domestic firms in the same industry and region. However, this difference may reflect that foreign multinationals tend to hire high-skilled workers. The authors study workers who move across firms in their data to show that the same worker earns 7% more in wages when moving from a domestic firm to a foreign multinational. In the aggregate, this 7% raise is not trivial— roughly $34 billion annually in US wages, or about 0.6% of all private sector wages, are paid as a premium by foreign multinationals.

Indirect Effects: What happens to domestic workers and firms when foreign multinationals enter a commuting zone? The broad answer is that employment and wages increase, and there is overall value added (sales minus the cost of goods sold) for private firms. These positive effects are highest for firms in the tradable goods sector and among those domestic firms with more than 100 employees.

The accompanying maps in this Economic Fact show the distribution of foreign multinationals in the US in 2001 and where their employment grew over time (Figure 1). An accompanying figure presents the wage gains when moving from the average domestic firm to the average foreign multinational by country of foreign ownership (Figure 2).