The Effect of U.S. Direct Investment Abroad on the Labor Market Outcomes of Different Industrial Sectors

Abstract

The media and the American public generally understand U.S. offshoring or direct investment abroad as a bad thing that costs the average American his/her job. As a result, this paper attempts to shed some light on whether the U.S. is truly investing all of its jobs abroad rather than at home. In order to do this, the paper will investigate the effect of U.S. direct investment abroad in Canada and European countries on the labor market outcomes of different industrial sectors. This paper focuses on Canada and European countries because they have been good trade allies with the U.S. and have the technological capabilities to build competitive foreign a liates. Though there is a negative connotation associated with U.S. offshoring, the general belief that it is detrimental to the overall definition of the American dream may not be the case. This paper finds that U.S. direct investment abroad has a negative effect on the wages of domestic workers, while its effect on employment levels may be ambiguous depending on the individual countries in which direct investments are made. Thus U.S. direct investment seems to have a detrimental impact currently, but to truly understand the future of the employment of domestic workers, better data and understanding of multinationals and foreign direct investment first need to be established.