FDI and the Task Content of Domestic Employment for U.S. Multinationals

Using a unique dataset, we examine how the foreign direct investment activities of U.S. multinational manufacturers are related to the composition of their domestic employment. The analysis is based on a dataset in which Bureau of Economic Analysis (BEA) firm-level data on the foreign operations of U.S. multinationals are matched with Bureau of Labor Statistics (BLS) establishment-level data on occupation and wage distributions. The main implication of our findings is that foreign direct investment is generally positively correlated with domestic labor demand, with automated/routine tasks representing a notable exception. For firms that predominately engage in offshoring to their foreign affiliates, foreign labor in low-income countries appears to substitute for domestic labor in automated/routine tasks. Our results show that these firms tend to be younger and smaller and only comprise one percent of sales in our sample. They do not seem to be more engaged in innovative activity at home compared to other multinational manufacturers.