Insourcing Jobs Benefit the U.S. Economy No doubt, outsourcing of US jobs has dominated headlines in many regions impacted by foreign competition. While many U.S. manufacturing jobs have been relocated to overseas, many economic developers have noted an emerging economic force that is propelling foreign-owned companies to invest in U.S. subsidiaries. The Organization for International Investment (OFII) recently released a study, ˇ§Insourcing Mergers & Acquisitions,ˇ¨ that documents how U.S. firms and workers are benefiting from foreign mergers with or acquisition of U.S. businesses. Dr. Matthew Slaughter at Dartmouth University, author of the study, maintains that those so-called ˇ§insourcing companiesˇ¨ not only employ millions of American workers, but also return profits back into U.S. operations as well as conduct a significant proportion of their business with other American companies. Slaughter reports that mergers and acquisitions are the main way in which foreign multinational companies start their U.S. operations. Between 1987 and 2006, the U.S. received $2 trillion in new foreign direction investment. Of that amount, nearly 89 percent result from insourcing companies resulting from mergers and acquisitions in which foreign companies purchase U.S. companies. The remaining investment resulted from greenfield investment activities or from foreign firms building new facilities. The report offers evidence that these mergers and acquisitions (M&A) transactions played a critical role to benefit the overall U.S. economy because acquired U.S. companies often gain access to more capital, increase their productivity and efficiencies, and expand their global reach. As a result, insourcing companies added significant employment, wages, and capital investment. In 2006, insourcing companies employed nearly 5.1 million U.S. workers, accounting for 4.4 percent of total private-sector employment. Those jobs produced a total annual payroll of $336 billion, representing an average compensation of $66,042 per worker. The average worker in these companies earned nearly 32 percent higher than the average worker for all U.S. companies. These insourcing companies produced $540 billion in sales, representing 5.6 percent of all private-sector output (GDP). They also purchased $121 billion in new property, plant and equipment, representing 9.5 percent of all private-sector capital investment. They are also vital export engines for the US. Insourcing companies exported $169 billion of goods to the rest of the world, accounting for 18.7 percent of the total U.S. exports. The author argues that the world economy in recent years has enjoyed some of the strongest and most widely shared growth ever seen, particularly among developing countries that have liberalized their trade and investment policies to allow companies to expand their operations. These trends mean stiffer competition for the U.S. in its efforts to attract and retain insourcing companies and the jobs they support. To ensure the U.S. remains a competitive location for high-productivity job creation and investment by globally engaged companies, including both insourcing companies and U.S. multinationals alike, the author proposes six policy recommendations:
For a copy of the report, please check on http://www.ofii.org/OFII_M_A_Study.pdf. OFII compiled a database of insourcing jobs by state. To get statistics on jobs supported by U.S. subsidiaries in each state, please log on to http://www.ofii.org/insourcing-stats.htm#statejobs.
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