Chart
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).

More on this topic

Research Briefs·Jul 18, 2024

Historical Differences in Female-Owned Manufacturing Establishments: The United States, 1850-1880

Ruveyda Gozen, Richard Hornbeck, Anders Humlum and Martin Rotemberg
During the late 1800s, manufacturing establishments owned by females were smaller than those owned by males and had lower capital-to-output ratios. Female-owned establishments employed more women and paid women higher wages, and were concentrated in sub-industries like women’s clothing and...
Topics: Employment & Wages
Podcast Apr 16, 2024

Which Companies Discriminate Most? Experimental Evidence on Callback Rates by Applicant Race and Gender

Tess Vigeland and Evan K. Rose
A small number of companies are responsible for a substantial amount of the discrimination in today’s labor market. Who are they? In this episode of The Pie, Evan Rose, the Neubauer Family Assistant Professor in Economics discusses results from his...
Topics: Economic Mobility & Poverty, Employment & Wages
Research Briefs·Apr 8, 2024

A Discrimination Report Card

Patrick Kline, Evan K. Rose and Christopher R. Walters
A new statistical methodology is used to grade the race and gender callback gaps of large US employers and shows that firms assigned the worst grade are estimated to favor white applicants over Black applicants by 24%, while those assigned...
Topics: Economic Mobility & Poverty, Employment & Wages