NCPA - National Center for Policy Analysis

Job-Creating Foreign Investment in United States Lags

May 11, 2012

Foreign investment in the United States is ebbing, and this threatens to have a severe economic impact on a labor force that already faces high unemployment.  This is because foreign investment (especially by foreign firms creating subsidiary operations in the United State) has historically been a strong and reliable source of employment for American workers, says Reuters.

  • The United States attracted about 17 percent of global investment in 2009.
  • This is down sharply from over 41 percent in 1999.
  • Up to 95 percent of foreign investment in the United States is from Europe and Canada.

An underappreciated factor when discussing the loss of foreign investment is the pivotal role that it plays in propping up the American economy.  Foreign firms constitute a substantial portion of gross domestic product (GDP) and total payroll expenditure domestically.

  • U.S. subsidiaries of foreign companies and their suppliers add $2 trillion to the U.S. economy, or 14.2 percent of GDP.
  • They also account for $1.2 trillion in payroll expenditure, or 14 percent of the total.
  • Many of these products and services are focused more on exports because of the Obama administration's goal of doubling them by 2015 to create jobs and stimulate the economy.

By allowing for so much economic activity, this foreign investment is crucial in supporting the weak labor market by bringing millions of jobs to domestic workers.

  • The Organization for International Investment stated U.S. subsidiaries account for 21 million jobs directly and indirectly -- or 12.2 percent of total employment.
  • Every dollar paid directly by foreign companies' U.S. units supports an added $2 in total U.S. compensation to supply-chain workers and companies that benefit from paycheck spending.
  • The subsidiaries employ 5.3 million workers directly, accounting for another 6.6 million supply-chain jobs and 9.2 million jobs tied to employee paycheck spending.
  • Furthermore, workers in these operations also receive a substantial wage premium over industry averages.

Source: Lynn Adler, "Job-Creating Foreign Investment in U.S. Lags," Reuters, May 10, 2012.

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