MNCs as job creation machines — just not here

In earlier postings, I discussed the recent data on the slowdown in job creation by start-ups. It has been taken as an article of both faith and data that small companies, especially new start-ups are the job creators in this economy and the large companies are dinosaurs. But, as David Wessel points out in today’s Wall Street Journal, multinationals are adding employment but not in the U.S. (“U.S. Firms Keen to Add Foreign Jobs“):

U.S.-based multinational corporations added 1.5 million workers to their payrolls in Asia and the Pacific region during the 2000s, and 477,500 workers in Latin America, while cutting payrolls at home by 864,000, the Commerce Department reported.

The Commerce Department study (Operations of U.S. Multinational Companies in the Unites States and Abroad) was recently published in the November 2011 edition of the Survey of Current Business.
The study attributes the job growth patterns to companies expanding production locally in fast growing markets, rather than shifting to low-wage sites. However, there has been an interesting shift in U.S. trade patterns by multinationals, where “MNC-associated imports exceeded MNC-associated exports by 21.6 percent, a reversal from 1999 when MNC-associated exports exceeded MNC-associated imports by 12.9 percent.” In other words, multinationals switched from being net exports to being net importers. I take this as evidence of offshoring of production, not just expansion of production in foreign markets to satisfy the demand in those markets.
I would note also that this is a study of U.S. multinationals, not foreign multinationals operations in the United States. Employment by foreign companies in the U.S. is also down. But that is more the result of the general economic slowdown in the U.S. rather than any major shift in production locations. For the latest data on these companies, see the BEA’s report “U.S. Affiliates of Foreign Companies” in the August 2011 edition of the Survey of Current Business
So, in addition to policies for start-ups and helping existing companies grow faster, we need to look at ways to promote job growth in the US by the US multinational companies. There are no shortages of ideas floating around to do that — from tariffs to taxes. I don’t have an particular insights to any of these proposals. I do like the concept imbedded in the recent legislation by Senators Coons and Rubio to give a bonus (a Domestic Manufacturing Credit) in the R&D tax credit to companies who produce in the U.S. (see earlier posting). We need more thinking like that if we are to solve our jobs problem.

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