Immigration, offshoring and US jobs

Gianmarco I.P. Ottaviano, Giovanni Peri, Greg C Wright, 18 November 2010

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Manufacturing production and employment in the US has been in decline over recent decades. This loss of jobs is often blamed on a combination of multinational firms relocating jobs abroad and immigrant workers increasing competition in the labour market. But measuring the impact of globalisation on jobs is more difficult than that, even if many choose not to believe it.

Globalisation and the manufacturing blues

On the one hand, offshoring some production processes or hiring immigrants to perform them, directly reduces the demand for native workers. On the other hand, the cost-savings of such restructuring of production increases the productivity and size of firms and improves their competitiveness. As a consequence, this process will indirectly increase the demand for native workers, if not exactly in the same tasks that were offshored or given to immigrant workers, then certainly in tasks that are complementary to them.

Jobs and tasks

Several recent studies have indeed emphasised the potential cost-savings effect of offshoring (Grossman and Rossi-Hansberg 2008, Harrison and McMillan 2010, Wright 2010, Baldwin 2010, Baldwin and Robert-Nicoud 2010) arguing that this effect could offset or even reverse the direct displacement effect on employment and thereby generate a non-negative effect on the employment of less-educated native workers. Other studies (Peri and Sparber 2009, Peri 2009) have suggested that immigrants may generate similar productivity-enhancing effects by increasing the demand for less-educated native workers, especially in production tasks that are complementary to those performed by immigrants.

In a recent CEPR Discussion Paper (Ottaviano et al. 2010), we present empirical evidence on these issues for the US from 2000 to 2007 by targeting two key questions. First, within the manufacturing sector, how did the gains due to the decline in offshoring and immigration costs compare with the increased labour market competition for domestic workers? Second, what kinds of occupations suffered most from the competition created by offshore and immigrant workers and what kinds of occupation benefited?

Our analysis relies on employment data from two different sources. The American Community Survey data (2000-2007) allow for measurement of the employment of native- and foreign-born workers in manufacturing for each of 58 industries in the US. Next, the Bureau of Economic Analysis dataset on the operations of US multinationals allows for measurement of employment in US multinational affiliates abroad for the same 58 industries over the same period.

Structural change and the boom-industry effect

There are two issues we have to deal with in order to tease out the specific impacts of offshoring and immigration on employment across manufacturing industries. First, the US has been experiencing a secular downward trend in manufacturing jobs due to structural changes that have little do to with globalisation per se. Hence, the impacts of offshoring and immigration are identified in terms of deviations across manufacturing industries in their exposure to globalisation and their employment changes. Table 1 shows how the exposure to offshore and immigrant labour differs across some representative industries.

Table 1. Immigrant, native and offshore workers as a percentage of total sector employment, 2007

Immigrant
US-born
Offshore
Industry
Representative Manufacturing Industries with high share of US-born employment
9
87
4
Cement and concrete products, lime and gypsum products
9
84
7
Wood products
9
80
10
Dairy products
13
80
7
Machine shops, turned products, and screws, nuts, and bolts
7
80
14
Iron and steel mills and ferroalloys, steel products from purchased steel
Representative Manufacturing Industries with intermediate share of US-born employment
12
68
20
Navigational, measuring, and other instruments
9
67
24
Glass and glass products
11
63
26
average
4
62
34
Pesticides, fertilizers, and other agricultural chemicals
Representative Manufacturing Industries with low share of US-born employment
13
52
36
Communications equipment, audio and video equipment
15
51
34
Computers and peripheral equipment
10
50
40
Pharmaceuticals and medicines
18
43
39
Fruit and vegetable preserving and specialty foods
4
28
68
Beverages

The second issue is that a correlation between these intensities and the employment performance of native workers across industries does not necessarily reveal any causation from the former to the latter. For example, a booming industry may attract all types of workers, including immigrant and offshore workers, thereby generating a positive correlation between immigrant, offshore, and native employment. However, this boom-industry effect can be netted out by looking at the impact of proxies for the “ease of offshoring” and the “ease of immigration” that vary across industries over time, and that are independent of industry-specific developments. In particular, using the fact that, in 2000, different industries used offshore labour from different countries while also employing immigrants from different countries, we can use the subsequent uneven growth in offshoring and migration between those countries and the US to obtain industry-specific variation that is likely to be cost-driven and not driven by industry-specific demand factors.

Jobs lost and jobs gained

We find that an increase in the “ease of offshoring” reduces the share of both native and immigrant workers in total industry employment while an increase in the “ease of immigration” reduces the share of offshore workers with no impact on the share of native workers. However, looking at employment levels (rather than shares), an increase in the “ease of offshoring” does not have an effect on the employment of natives in an industry whereas an increase in the “ease of immigration” has a small, positive impact on it. This is consistent with the existence of a positive productivity effect that generates an expansion of the manufacturing industries that are most exposed to immigration and offshoring.

Good jobs and bad jobs

By matching occupation data from the American Community Survey with the content of “manual”, “communication” and “cognitive” skills (and routine and non-routine activities) from the O*NET database we can also assess the response of the average task performed by native and immigrant workers (on a manual and routine vs. cognitive and non-routine scale). Our final finding is that an increase in offshoring pushes the average task performed by natives toward higher cognitive and non-routine content and the average task of immigrants toward more manual and routine content. In contrast, an increase in the share of immigrants has little effect on the average task performed by natives.

Who should be afraid of whom?

These empirical results together imply that immigrant workers do not compete much with natives, but rather compete for tasks that could be more easily performed by offshore workers. Since immigrants specialise in the most “manual-intensive” tasks, an increase in immigration is more likely to reduce the range of offshored tasks in an industry without affecting the employment level and type of tasks performed by natives. Offshore workers, on the other hand, specialise in tasks at an intermediate level of complexity and compete more directly with natives, thereby taking some of their jobs and pushing them toward more cognitive-intensive tasks. However, the positive productivity effect of offshoring then indirectly eliminates any negative effect on native employment by spurring firms within an industry to expand.

References

Baldwin, Richard and Frederic Robert-Nicoud (2010) “Trade-in-goods and trade-in-tasks: An Integrating Framework”, CEPR Discussion Paper No. 7775.

Baldwin, Richard (2010), “Thinking about offshoring and trade: An integrating framework”, VoxEU.org, 23 April.

Grossman, Gene and Esteban Rossi-Hansberg (2008), “Trading Tasks: A Simple Theory of Offshoring”, American Economic Review, 98:1978-1997.

Harrison, Ann and Margaret McMillan (2010), “Offshoring Jobs? Multinational and US Manufacturing Employment”, Review of Economics and Statistics, August

Ottaviano, Gianmarco, Giovanni Peri, and Greg C Wright (2010), “Immigration, Offshoring and American Jobs”, CEPR Discussion Paper N8078.

Peri, Giovanni (2009), “The Effect of Immigration on Productivity: Evidence from US states”, NBER Working Paper 15507.

Peri, Giovanni and Chad Sparber (2009), “Task Specialization, Immigration and Wages”, American Economic Journal: Applied Economics, 1:135-169.

Wright, Greg C (2010), “Revisiting the Employment Impact of Offshoring”, UC Davis Dissertation.

Topics: International trade, Migration
Tags: immigration, manufacturing, offshoring, unemployment, US

Gianmarco I.P. Ottaviano
Professor of Economics, LSE; Non-Resident Senior Fellow, Bruegel; and CEPR Research Fellow
Giovanni Peri
Professor of Economics at the University of California, Davis
Greg C Wright
PhD Candidate in Economics, University of California, Davis

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