Regional employment effects of MNE offshoring

Recently, employment has grown faster in Stockholm, Göteborg and Malmö than in other regions. Offshoring within Swedish multinationals – expansions in affiliates abroad – is related to increased employment and to considerably higher shares of skilled labour and non-routine jobs in parent companies in the larger cities. Skill- and non-routine-intensive activities benefit from agglomeration forces, which are stronger in larger cities.

Employment in Sweden has grown faster in larger cities (Stockholm, Göteborg and Malmö) than in regional centres (population more than 100,000) and in other regions. The annual employment growth in larger cities during the period from 1997 to 2016 was on average 2 percent, whereas it was 1 percent in regional centres and 0.5 percent in other regions. Moreover, the report shows that the employment of skilled labour (more than three years of post-secondary education) is heavily concentrated in larger cities and that the share of skilled labour has increased faster in these regions than in other parts of Sweden. We observe a similar results, but not as clear-cut, for non-routine jobs.

In this report, we examine to what extent Swedish multinational enterprises (MNEs) have contributed to this development. We analyse the relationship between expansions abroad – increased employment in affiliates overseas (offshoring within MNEs) – and employment in parent companies in Sweden at regional level (in different local labour markets, LA-regions). Our results indicate that offshoring and fragmentation within Swedish MNEs have contributed to increasing the concentration of employment in larger cities and to considerably higher shares of skilled labour and non-routine jobs in these particular regions.

Agglomeration, knowledge spillovers and labour mobility

One explanation to an increased localisation of production and employment within Swedish MNEs to larger cities, notably of more skilled activities and non-routine jobs, is that the importance of agglomeration has recently been growing. Agglomeration leads to more innovations and improved matching in the labour market, especially for skilled labour, and also facilitates knowledge transfer between individuals and firms. This means that agglomeration generates positive externalities in denser areas, which are more prevalent in larger cities.

Moreover, the factors that might counteract the divergence in economic growth, arising from the concentration of knowledge-intensive activities in larger cities, have had less of an impact in recent time. This issue concerns the transfer of knowledge from highly advanced activities located in larger cities to less knowledge-intensive regions. The type of knowledge diffusion between these regions tends increasingly, due to a lack of receiving capacity in the latter regions, to be routine and codified.

Labour mobility is another factor that could potentially counteract an increasing divergence between regions. Skilled labour is the most likely carrier and adopter of new knowledge. The problem, however, is that the direction of the domestic migration of skilled labour across regions within Sweden moves in the wrong direction − from more peripheral regions to larger cities − to even out the differences between regions. In other words, the highly skilled labourers’ geographical mobility reinforces the uneven distribution of human capital between regions. Furthermore, regarding less skilled labourers, it appears that their tendency to move between regions has decreased, partly because of increased inter-regional differences in housing prices.

Regional employment effects of MNE offshoring

Serial number: PM 2019:05

Reference number: 2018/024

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