Paul L. Caron

Monday, September 13, 2010

Sullivan: U.S. Multinationals Cut U.S. Jobs While Expanding Abroad

Tax Analysts Martin A. Sullivan (Tax Analysts) has published U.S. Multinationals Cut U.S. Jobs While Expanding Abroad, 128 Tax Notes 1102 (Sept. 13, 2010):

It is only natural that U.S. companies have increased hiring overseas during the last decade. After all, the world economy has become increasingly integrated. There are huge overseas markets to be exploited. There are pools of low-cost labor to be tapped. So the steady upward trend shown in Figure 1 should come as no surprise. Between 1999 and 2008, employment by majority-owned foreign affiliates of U.S. parent corporations grew from 7.8 million jobs to 10.1 million. That's an increase of about 2.4 million jobs, or 30%.

Figure 1

Figure 2 shows that the number of U.S. employees of U.S. multinationals declined from 23 million to 21.1 million between 1999 and 2008. That's a decrease of about 1.9 million, or 8%. In 2008 the decline was 446,000.

Figure 2

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Your analysis is interesting but half-baked. The same source (Bureau of Economic Analysis) which gives the foreign employment numbers, also gives a break-up of employment by industry and the net sales and profits of majority-owned foreign affiliates of US corporations.

Here's the real picture:
1) Of the 2.4 MM jobs created abroad, only 240k were created in manufacturing.
2) Nearly 650 MM foreign jobs were created in retail trade, 439 MM jobs in Admin, support and Waste Management services; and 328 MM in Accommodation and Food Services -- these are all 'local' services that do not cater to the US consumer.
3) Per employee abroad US companies generated an average of $285K in sales and $20k in profit in 1999. In 2008, the productivity of foreign employees has staggeringly increased to $514k in sales and $86k in profits on average.
4) Per US employee, parent sales grew from $260k to $413k, but are still below the foreign affiliate numbers
5) Per US employee, profits decreased from $17k to $10k on average -- and that is a significant difference
6) Per US employee salaries rose from $48k to $65k -- indeed the jobs lost must have been low-paying jobs. Per foreign employee salaries rose from $33k to $43k -- but are still well below US numbers.

Posted by: Raj Bhatt | Sep 14, 2010 3:20:01 AM

If they have a choice, why would a multinational hire an employee here? In convoluted, indecipherable detail, the Government tells multinationals how to hire, compensate and fire employees, the conditions under which they work, the benefits that must and can be provided them, and imposes excise taxes on employee salaries. Of course, the fed also regulates all the activities you wish to undertake through said employees. Then you have to submit costly reports, and host time consuming audits, for the foregoing.

The U.S. immigration and education systems target social justice, not a multinational's needs.

To fund all that unhelpful activity, the Federal government skims a third of your corporate income (Second highest in the developed world!).

Posted by: guy in the veal calf office | Sep 13, 2010 5:56:12 PM