Multinationals Dump U.S. Workers for Foreign Labor
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The Fiscal Times
May 9, 2011

  • Companies with fewer than 50 employees account for 84 percent of job gains.
  • From 1999 to 2009, U.S. multinationals cut U.S. jobs by 2.9 million.
  • Productivity gains account for 88 percent of of the growth in U.S. production.

When it comes to job hunting, big is out. Small is in. Over the past decade, the explosion of global trade and a sharp focus on productivity and cost cutting have accelerated a key trend in U.S. labor markets: Jobs at big companies just aren’t as plentiful as they used to be. That means the burden of job creation is falling increasingly to small businesses, which have accounted for the lion’s share of job growth in this economic recovery.

Job growth has picked up in recent months. April payroll gains beat expectations, rising by 244,000 workers, the Labor Department reported on Friday, although the unemployment rate ticked up to 9 percent from 8.8 percent in March. Despite the upturn in jobs, private-sector payrolls are only 787,000 above where they were when the recovery began in June 2009. Employment is still 6.7 million jobs below the pre-recession peak and 2.8 million below the pre-2001 recession.

The breakdown of hiring gains by size of private-sector companies is striking. Over the past decade, payrolls of small businesses that employ 1 to 49 workers have increased by 2.6 million, based on data from Automatic Data Processing, while jobs at companies with 50 or more employees have shrunk by 5.4  million. Since the current recovery began, firms with 50 or more workers have generated only 16 percent of private-sector job growth, with smaller businesses accounting for 84 percent of the gains.

The biggest drag on job creation, both in this recovery and over the past decade, has come from the largest companies, those with 500 or more employees. That’s especially true for big multinational corporations, which employ about one-fifth of all American workers and pay higher average wages than other U.S. companies, according to a study by the McKinsey Global Institute. Payrolls at these large firms have edged up in recent months, but are still below where they were when the recovery began. More important, since 1999, U.S. multinationals have been shrinking their payrolls in the U.S. while beefing up their overseas workforces, according a recent report by the Bureau of Economic Analysis (BEA).

Between 1999 and 2009, these large global corporations pared 2.9 million workers from their U.S. payrolls while adding 2.4 million jobs at their foreign affiliates. That’s a reversal from the previous decade, when they boosted payrolls across the board, including increases of 4.4 million in the U.S. and 2.7 million overseas. These companies are simply doing what most small outfits cannot: They are going where the business is. Between 1999 and 2009, BEA says, sales by U.S. multinationals in the U.S. increased by 25 percent, to $7.8 trillion, but receipts from their overseas operations more than doubled, to $4.9 trillion.

James C. Cooper
was BusinessWeek's senior editor, senior economist and author of its influential Business Outlook column. Prior to that, he was an economist at the American Paper Institute, performing economic analysis and forecasting. He holds bachelors and masters degrees in economics.