U.S. affiliates of foreign companies: operations in 1983.

Howenstine, Ned G.

EMPLOYMENT of nonbank U.S. affiliates of foreign direct investors increased 3 percent in 1983, to 2,526,000, after increasing 1 percent in 1982 (table 1). The increases in these 2 years were small compard with the 19-percent average annual growth rate in teh preceding 4 years. Growth slowed in 1982 primarily as a rsult of the worldwide recession. In 1983, despite improvement in general economic conditions, affiliate employment increased only slightly, because the recession had significantly weakened many foreign multinational companies' ability to make new direct investments.

This article focuses on employment because changes in employment are not directly affected by inflation and, thus, tend to correspond more closely than other available items to changes in real economic activity. The accompanying tables, however, present estimates of some of the other key items on U.S. affiliates' operations, such as total assets, sales, land owned, and merchandise trade.

Rough estimates of the major sources of change in affiliate employment indicate that the small increase in the employment growth rate in 1983 occurred despite a significant decline in the number of employees aded as a result of new foreign investments (table 2). That decline was more than offset by an increase in the number added through expansions in the operations of some existing U.S. affiliates and a sharp decline in the number lost because of cutbacks in the operations of others.

Employees added as a result of new investments dropped from 186,000 in 1982 to 135,000 in 1983 (table 2, line 2). (The number added in each of these years was probably significantly smaller than in any of the preceding 4 years.) New investment activity slowed in 1983, because the worldwide recession left many foreign multinational companies in weaker financial condition at the beginning of 1983 than a year earlier. Furthermore, the financial condition of most foreign companies probably improved only slightly during 1983 because, unlike in the United States, where a strong recovery had begun, economic activity in many foreign industrialized countries remained sluggish. Even for companies whose profits improved, increases in new investments were probably unlikely, because investment plans cannot be adjusted immediately to improving conditions.

Employees added through expansions in the operations of existing affiliates increased from 36,000 to 65,000 (table 2, line 3). With the improvement in the U.S. economy, affiliates were able to return idle capacity to production and to recall employees laid off earlier. Also, new production capacity added as a result of capital spending programs prompted the hiring of new employees.

Employees lost because of cutbacks in the operations of existing U.S. affiliates decreased sharply--from 137,000 to 79,000 (table 2, line 5). Most of the losses in employees in both years were probably temporary and may have largely reflected slowdowns in the affiliates' operations caused by slack markets. Some of the declines in employment, however--such as those due to the discontinuation of affiliates' operations, or shifts to less labor-intensive production processes--may have been more lasting. (Line 5 of table 2 includes declines in employment that occurred because an affiliate discontinued a line of business, as long as the affiliate did not sell that business to someone else. Declines in employment that occurred because an affiliate sold a line of business or because the affiliate itself was sold or liquidated are included in line 4.) The number of employees laid off by affiliates decreased in 1983, primarily because of the sharp improvement in the U.S. economy. Layoffs that did occur in 1983 were largely in industries, such as machinery manufacturing, where affiliates' operations continued to be unprofitable.

By industry of affiliate, the 1983 increase in employment was more than accounted for by manufacturing (60,000), retail trade (19,000), finance (11,000), and "other industries" (8,000). Employment in mining, petroleum, wholesale trade, and insurance declined. By country of ultimate beneficial owner (UBO), the largest increases in employment were attributable to affiliates with UBO's in Japan (22,000), Latin America (22,000), and the United Kingdom (13,000).

Within manufacturing, employment increased in every major subindustry. Increases were particularly large in metals (28,000), food (13,000), and "other manufacturing" (13,000). The increase in "other manufacturing" was spread over several industries, mainly printing and publishing; stone, clay, and glass; and rubber and plastics.