Tuesday, January 21, 2014

Workers At US-Based Global Companies Earn More Than Workers At Purely Domestic Companies

From The Wall Street Journal, "'High-Trade' Jobs Pay Higher Wages: Workers in multinational firms earn more, as global engagement fosters innovation and productivity growth." by Matthew J Slaughter:
According to the most recent government data, nearly 22.9 million Americans worked at companies in 2011 that paid an average annual compensation of $73,338—more than 25% higher than the average for all private businesses. Average compensation in these companies rose by 18.3% in real terms since 2000. In 2011 another 5.6 million Americans worked at companies that paid an average annual compensation of $77,632—which rose by 19.4% in real terms since 2000. These high and rising earnings are in contrast to median U.S. household income, which was $50,054 in 2011—8.7% lower in real terms than in 2000.

The two sets of companies are the U.S. parents of U.S.-headquartered multinational companies and the U.S. affiliates of foreign-headquartered multinational companies.

Research has long documented that workers at globally engaged companies tend to earn more than workers at purely domestic companies. Exporters tend to pay about 15% more. Multinational companies, which not only export and import but also undertake international investment, tend to pay even more. All these "high-trade" jobs tend to pay more because global engagement fosters—and is fostered by—innovation and productivity growth. In 2011, multinational companies in America were responsible for 57.2% of all U.S. private nonresidential capital investment and a remarkable 85.3% of all U.S. private research and development dollars.
An important piece of this country's income puzzle is that its globally engaged companies have stopped expanding in America as they did in earlier decades. Laura Tyson and I recently documented in the Harvard Business Review that fast U.S. growth by these companies in the 1990s—a period that included strong income growth for all Americans—gave way to much slower growth in the past 10-15 years. Their total U.S. employment in this time period has basically moved sideways.

This is not, as is commonly alleged, because these companies "export jobs," replacing workers in America with workers abroad. The balance of academic research continues to find that expansion abroad by global companies tends to expand, not contract, their U.S. employment. Rather, the leaders of these companies continue to struggle against poor U.S. policies—substandard infrastructure, flawed immigration rules, failing schools and complex taxation—that erode their ability to profitably hire and invest here.

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