Offshoring Drove A Lot Of U.S. Deindustrialization

A new article quantifies the U.S. manufacturing job losses caused by offshoring by multinational companies.

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

Christoph E. Boehm, Aaron Flaaen, Nitya Pandalai-Nayar

NBER Working Paper No. 25824
Issued in May 2019
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, International Trade and Investment 

We provide new facts about the role of multinationals in the decline in U.S. manufacturing employment between 1993-2011, using a novel microdata panel with firm-level ownership and trade information. Multinational-owned establishments displayed lower employment growth than a narrow control group and accounted for 41% of the aggregate manufacturing employment decline. Further, newly multinational establishments in the U.S. experienced job losses, while their parent firms increased input imports from abroad. We develop a model that rationalizes this behavior and bound a key elasticity with our microdata. The estimates imply that a reduction in the costs of foreign sourcing leads firms to increase imports of intermediates and to reduce U.S. manufacturing employment. Our findings suggest that offshoring by multinationals was a key driver of the observed decline in manufacturing employment.