by Matthew J. Slaughter and Matthew Rees
Jan 23, 2023
Happy new year (and, for those of you in China or who are celebrating it elsewhere, happy Year of the Rabbit). Because of rampant inflation, 2022 was one of the worst years in decades for falling real incomes across the globe.
Here in America, real average weekly earnings of all U.S. workers fell 3.1 percent in 2022. A central policy challenge in the year ahead is not just creating jobs. It is creating good jobs, i.e., jobs with high and rising incomes.
How to meet this challenge? Just before the winter holidays, the U.S. Bureau of Economic Analysis released new data that show the way forward. In 2020, a certain set of U.S. companies employed 28.4 million workers in America at an average annual compensation of $84,925—about 20 percent higher than the average for the rest of the U.S. private sector.
Which companies? The U.S. parents of U.S.-headquartered multinational companies. U.S. multinationals have long been among America’s strongest firms. Although they comprise far less than 1 percent of U.S. companies, in 2020 their U.S. parents accounted for 23.1 percent of all private-sector jobs, 38.5 percent of investment in plant and equipment, 46.4 percent of exports of goods, and a remarkable 72 percent of business spending on research and development.
Despite the common allegation that multinationals simply ‘export jobs’ out of America, research consistently shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations.
Despite the common allegation that multinationals simply “export jobs” out of America, research consistently shows that expansion abroad by these firms has tended to complement—not substitute for—their U.S. operations. More investment and employment abroad have tended to create more American investment and jobs as well. From 1988 to 2020, employment in foreign affiliates of U.S. multinationals rose from 4.8 million to 14 million. Over that same period, employment in U.S. parents rose from 17.7 million to 28.4 million—a slightly larger increase at home than abroad.
Thanks to all their global dynamism, for decades U.S. multinationals have driven an outsized share of U.S. productivity growth, the foundation of rising standards of living for everyone. They accounted for about 40 percent of the increase in U.S. business labor productivity since 1990. For workers, the bottom line of all this is high and rising incomes. Globally connected jobs tend to pay more because global engagement fosters—and is fostered by—innovation and growth.
There is vast potential for creating more good jobs in America that are connected to the world. From 2000 to 2020, U.S. output expanded by $10 trillion—but over that generation the rest of the world grew by over $40 trillion, such that by 2020 America’s share of global output had fallen to just 24.8 percent, down from about 30 percent in 2000. Growth in labor forces and productivity around the world has boosted the purchasing power of millions of companies and billions of consumers. U.S. multinational companies have harnessed this growth through their exports from America and, even more, through the local sales of their foreign affiliates. And in the postpandemic years ahead, forecasts of continued faster growth in the rest of the world mean even greater potential for U.S. multinationals to build more jobs and opportunity in America connected to that global growth.
But realizing this potential is not a foregone conclusion, because global growth has also spawned new competitors for U.S. multinationals. The McKinsey Global Institute recently documented and analyzed the world’s “superstar” companies that generate the largest economic profits thanks to features including high productivity. From 1995 to 2016, the U.S. share of global superstar companies fell from nearly 50 percent to 38 percent. Particularly ascendant are superstars from fast-growing Asian countries, including China, India, and South Korea. There is no guarantee that past global strength of U.S. multinationals will be prologue.
And unfortunately, the sobering reality is that the United States has become largely adrift in its policy engagement with the global economy. America’s many post–World War II decades of liberalizing trade, investment, and immigration—all to the benefit of American companies, as well as to the American economy overall—have largely stalled out.
High-productivity, high-wage jobs tend to be global jobs. We should recommit to investing in creating them.
Consider trade. America has stopped pursuing new trade agreements and instead has launched and maintained a trade war. From 2010 to 2020, the United States implemented just four new free-trade agreements—three of which (Colombia, Peru, and South Korea) had been negotiated and ratified before 2010, and the fourth of which, the USMCA, was largely refining the NAFTA that had been negotiated decades earlier. Meanwhile, so many other nations have maintained and even accelerated their efforts at trade liberalization. Free-trade agreements that exclude the United States are agreements that impede the growth of U.S. companies both abroad and at home.
To support American workers, the White House and the new Congress need to turn their attention away from pandemic ad hockery. High-productivity, high-wage jobs tend to be global jobs. We should recommit to investing in creating them.