Workers in multinational firms earn more, as global engagement fosters innovation and productivity growth.
By Matthew J. Slaughter (The Wall Street Journal):
The government’s employment report for December showed that the central policy challenge is not just more jobs but rather more well-paying jobs. About a third of the 2.2 million new jobs in 2013 were in retail, accommodation and food services, two of the lowest-paying industries. Only 3.5% of the new jobs last year were in higher-wage manufacturing industries.
There is a growing concern about stagnant or falling incomes, yet most of the measures proposed to deal with the issue—raising the minimum wage and reinstating unemployment benefits—purport to help workers by offsetting market forces. Less attention is given to harnessing market forces. Are there companies in America paying high and rising wages? Can policy makers support the hiring of these companies? The answer to both questions is yes.
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.
This dynamism creates good jobs not only at global companies themselves but also at their domestic suppliers. In a recent report for the Business Roundtable, I calculated that in 2010 U.S.-based multinational companies purchased about $6 trillion in intermediate inputs from other companies in America—including approximately $1.5 trillion from U.S. small businesses, companies that employ 500 people or fewer. The typical U.S. multinational buys each year more than $3 billion in inputs from more than 6,000 small-business suppliers in America.
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.
What can policy makers do? First, they should talk less about low-wage jobs and more about low-trade jobs, bringing home the importance of globalization to a wide audience. Second, they should foster output demand—and so worker demand—for companies that tend to create high-wage jobs connected to the world economy.
This means liberalizing U.S. trade, investment, immigration and tax policies. Immigration by high-skilled workers needs to be expanded and streamlined. America’s complex business-tax code needs to be simplified and rates brought down. Liberalize trade and investment through initiatives like the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership.
This is a tall order. But it can be met—ultimately to help workers by harnessing the market to their advantage.
Mr. Slaughter, professor and associate dean at the Tuck School of Business at Dartmouth, served as a member of the Council of Economic Advisers from 2005 to 2007.