Losers and Winners in the New Geography of Work

A multinational company's strategic choices regarding where to locate manufacturing activities visibly change the geography of work. The issue is as current as it is controversial: there has long been a perception in public opinion of industrialized economies that the strategies of productive relocation and foreign investment of multinational companies have contributed to the downsizing of employment, especially of routine and unskilled jobs. Academic research on the subject tends not to support this view. Recent studies emphasize how the progressive geographical and functional fragmentation of production, which has led companies to offshore functions with low value added while maintaining those with the high knowledge content in the countries of origin, has made it possible to optimize industrial processes, with consequent increased investment and creation of new jobs in the countries of origin. In the aggregate, the net outcome is therefore positive, or at least non-negative, although the heterogeneity of the effect for various classes of individuals is usually not taken into account, even if we expect that the impact is differential for workers who perform tasks of different natures.

The study conducted by the research team composed of Luisa Gagliardi (Bocconi University), Simona Iammarino and Andrès Rodriguez-Pose (London School of Economics) tackles this topic. It aims to analyze the reasons underlying the misalignment between public perception and academic research on the effects of the offshoring and foreign direct investment strategies of multinational companies on the labor markets of their respective countries of origin. Using data on the number of jobs created/destroyed, classified according to the knowledge content of the jobs in question, and on the amount of outgoing foreign investment by micro geographical area and sector of reference for Great Britain, the authors have focused on the geographical dimensions of business decision-making vis-à-vis that of the effects on the labor market, in order to reconcile public and academic debates on the issue.

The consequences of the decisions of outsourcing and foreign investment by multinational companies are in fact predominantly felt at the local level. This is because every local labor market, even within the same national context, is marked by specific sectoral and functional specialization. Consequently, the areas in which jobs are lost as a result of offshoring processes rarely coincide with those in which new opportunities emerge downstream of the geographical reorganization of production and related productivity returns. Therefore, although the aggregate effect at the country system level is positive, or in any case not negative, in the medium-to-long term the geographical distribution of the costs and benefits associated with these processes remains highly unfair.
The study shows how the negative effects on the countries of origin of the outsourcing and foreign investment strategies of multinational companies are concentrated in geographical areas characterized by industrial maturity and disproportionately affect workers who perform low-value-added routine tasks. On the contrary, the benefits in terms of greater investment and new jobs mainly involve areas that feature innovative production systems and, within these areas, categories of workers with high value added who perform tasks of a non-routine or cognitive nature.
This evidence requires a profound reflection on the social consequences of strategic business decisions and on the distribution of the associated costs in individual and geographic terms.