GLOBAL CHAINS OF PRODUCTION
Many recent economic appraisals of globalization have tended to concentrate upon trade in finished products, but globalization has also left its mark on the way production itself is organized. Firms can now spread their "chains of production" across the globe: goods that are designed, marketed, and sold in the United States may be assembled and packaged in other countries where labor is cheaper. This strategy of "foreign outsourcing" throws far-flung labor markets into potential competition with one another and may squeeze the earnings and employment opportunities of low-skilled Americans.
Using a novel measure of outsourcing derived from U.S. tariff records, Gordon Hanson of the University of Texas and the NBER will track the use of offshore assembly services in the U.S. apparel, footwear, and electronics industries and calculate the impact on jobs and wages for U.S. workers of different skill levels. A parallel study-- the first to use newly available data on multinationals from the Bureau of Economic Analysis-- will examine how U.S. multinationals divide up their activities between their foreign and domestic operations.
The net impact of foreign outsourcing on U.S. employment is ambiguous. If firms take advantage of relatively cheap foreign labor, low-skilled U.S. jobs may well be lost. But the efficiency gains from foreign outsourcing may bolster U.S. firms against foreign competitors and allow some to expand, creating new jobs in high-skill areas such as design and marketing even as they cut back on low-skilled U.S. workers.