Industrial R&D Employment in the United States and in U.S. Multinational Corporations

by Francisco Moris 

This InfoBrief provides employment estimates for industrial scientists and engineers who engage in research and development (R&D employees or R&D workers), using survey data from the National Science Foundation (NSF), U.S. Bureau of Economic Analysis (BEA), and U.S. Bureau of Labor Statistics (BLS). The combined data reveal that since 1994, industrial R&D employment has grown at a faster rate than overall industrial employment in the United States. R&D employment among U.S. multinational corporations (MNCs) is concentrated domestically, but between 1994 and 1999, overseas affiliates of MNCs increased their R&D workforce at a faster rate than did their U.S. parent companies. Overseas R&D employment of U.S. MNCs was concentrated in Europe, but growth was notable in some emerging markets.

NSF data are from the Survey of Industrial R&D, which collects data for all R&D-performing companies in the United States, regardless of ownership status. BEA data are from two international investment surveys, the Survey of Foreign Direct Investment in the United States and the Survey of U.S. Direct Investment Abroad, which collect selected R&D data from affiliates of foreign companies located in the United States, parent companies of U.S. MNCs, and their overseas affiliates. Selected aggregate data on industrial employment are from the BLS Survey of Current Employment Statistics. See Data Notes, below, for more detail on these surveys.

R&D employment data from both the NSF and the BEA surveys include scientists and engineers who perform R&D activities, whether or not the employee's college degree is in a science and engineering field. BEA R&D employment estimates are based on head counts for scientists and engineers that devote the majority of their time to R&D activities. NSF R&D employment estimates are based on full-time equivalent (FTE) R&D scientists and engineers. To report FTE counts, companies are asked to include scientists and engineers who perform R&D functions on a full-time basis plus an adjusted number of employees whose activities are not solely devoted to R&D (based on the proportion of their time devoted to R&D activities).[1]

U.S. Industrial R&D Employment Trends

NSF data show that U.S. industrial R&D employment was nearly level in the early 1990s (figure 1). Since then, R&D employment strengthened, reaching one million workers for the first time in 1999. In 2001 there were 1.05 million FTE R&D workers in the United States compared to 109.01 million workers in industries other than agriculture (nonfarm workers) (NSF and BLS data; table 1).

Wages and related labor costs in the 1990s typically accounted for over 40 percent of U.S. industrial R&D expenditures.[2] From 1994 to 2000 these expenditures grew annually an average of 7.0 percent (after adjusting for inflation), supporting an average annual growth rate of 5.4 percent in R&D employment, compared with 2.7 percent in total industrial employment. R&D employment changed little from 2000 to 2001 (table 1).

Key Industries
The U.S. manufacturing sector employed 58 percent of R&D workers in 2001, consistent with its 61 percent share in R&D expenditures (table 2). The computer and electronic products industry employed nearly one-fourth of U.S. industrial R&D workers. Together, the information industry and professional, scientific, and technical services employed another fourth of industrial R&D employees, reflecting the growing role of information and service industries in U.S. R&D activities. Trade and transportation equipment manufacturing completed the list of top five industries in terms of R&D employment.[3]

In 2001 R&D expenditures per R&D worker for the aerospace industry were almost twice as large as the average for all industries, followed by transportation equipment, pharmaceuticals and medicines, and scientific R&D services (table 2).

U.S. Affiliates of Foreign Companies
According to BEA data, U.S. affiliates of foreign companies employed 141,700 R&D workers in the United States in 2001 (table 3), compared to 1.05 million FTE R&D workers employed by all R&D-performing companies located in the United States.[4] R&D expenditures in U.S. affiliates of foreign companies represented 15 percent of U.S. industrial R&D expenditures in 2001.

R&D employment in U.S. affiliates of foreign companies grew at an average annual rate of 4.4 percent between 1994 and 2001, comparable to the growth rate in all U.S. R&D performing companies (4.8 percent). Over the same period, R&D expenditures in U.S. affiliates of foreign companies grew at an annual average rate of 7.6 percent (after adjusting for inflation), higher than the growth rate in all U.S. R&D performing companies (5.5 percent).

Between 1994 and 2001 R&D employment as a percentage of total employment (R&D employment intensity) in U.S. affiliates of foreign companies was just above two percent (table 3).

Key Investing Countries and Industries
Germany, the United Kingdom, Switzerland, France, and Japan accounted for about 70 percent of R&D expenditures and R&D employment in 2001 by U.S. affiliates of foreign companies. From 2000 to 2001 Finnish subsidiaries in the United States more than doubled their R&D workforce (1,400 to 3,300), and in the same period their R&D employment intensity almost doubled (3.5 percent to 6.8 percent). In 2001 Finnish subsidiaries had the largest R&D employment intensity among investing countries, followed by German and Swiss subsidiaries at 3.5 and 3.2 percent, respectively (table 4).[5]

Manufacturers represented nearly 75 percent of both R&D employment and expenditures in 2001, dominating R&D activity by foreign-owned affiliates in the United States. Chemical manufacturers (including pharmaceutical and medicine manufacturers) and computer and electronic products manufacturers employed a combined 41 percent of R&D workers (table 5). The information industry employed about 8 percent of R&D workers, and its publishing component (which includes software services) had the largest R&D employment intensity among nonmanufacturing industries.

U.S. Multinational Corporations and Overseas R&D Employment

Domestic and Overseas Activity
According to the latest available BEA data, in 1999 U.S. MNCs employed a global R&D workforce of 770,300, or close to 3 percent of their employees (table 6).[6] U.S. MNCs comprise U.S. parent companies and their majority-owned affiliates located overseas (foreign affiliates). U.S. parent companies employed 84 percent (646,800) of their R&D workers domestically; the remaining 16 percent (123,500) worked abroad for their foreign affiliates. In 1999 R&D expenditures showed a similar distribution in favor of U.S.-based activities.[7]

Between 1994 and 1999 worldwide R&D employment in U.S. MNCs grew at an average annual rate of 1.2 percent, well below average annual growth in both their overall employment (4.9 percent) and their R&D expenditures (6.9 percent). Within U.S. MNCs, however, R&D employment growth differed between parent companies and their foreign affiliates over this 5-year period. Overseas R&D employment grew at an average annual rate of 3.9 percent, compared with just 0.7 percent domestically, an indication of the increasing globalization of innovation and knowledge-based competition.

Key Industries
In 1999 two-thirds of R&D employment and three-fourths of R&D expenditures by foreign affiliates of U.S. MNCs were concentrated in three manufacturing industries: chemicals (including pharmaceuticals and medicines), computer and electronic products, and transportation equipment. Pharmaceuticals and medicines affiliates had the largest R&D employment intensity, at 8.5 percent (table 7). Professional, scientific, and technical services affiliates (which include those in scientific R&D services) employed the highest number of R&D employees (9,500) outside manufacturing and represented 7.7 percent of the overseas R&D workforce of U.S. MNCs.

Overseas Locations
R&D employment in foreign affiliates of U.S. MNCs was concentrated in Europe (figure 2). In 1999 foreign affiliates of U.S. companies in three European countries—France, Germany, and the United Kingdom—employed 52 percent (63,800) of all overseas R&D workers in U.S. MNCs and performed 49 percent ($8.83 billion) of all overseas R&D expenditures by U.S. MNCs (table 8). Affiliates of U.S. MNCs in Canada and Japan each employed 6 percent of overseas R&D workers of U.S. MNCs.

From 1994 to 1999, foreign affiliates of U.S. MNCs expanded their R&D workforce in some Asian emerging markets, including China, Hong Kong, Malaysia, Singapore, and South Korea, as well as in Israel and Mexico. During this period, R&D employment by U.S. MNCs in the Asia-Pacific region, excluding Japan, almost doubled to over 13,000 (see also NSB 2004:4-67 to 4-70; NSF 2004).

Data Notes

Surveys
The NSF Survey of Industrial R&D is a nationally representative sample of all for-profit companies in the 50 U.S. states and the District of Columbia, regardless of ownership status. Estimates are subject to sampling and non-sampling errors. See http://www.nsf.gov/statistics/srvyindustry/ for a description of the survey and its methodology.

BEA international investment data from the Survey of Foreign Direct Investment in the United States (FDIUS) and the Survey of U.S. Direct Investment Abroad (USDIA) are obtained from a combination of censustype surveys in benchmark years (every 5 years) and sample-based surveys in nonbenchmark years. For a description of data and for survey methodology see http://www.bea.gov/bea/di/fddscrpt.htm (FDIUS) and http://www.bea.gov/bea/di/usdscrpt.htm (USDIA).

BLS data are from the Survey of Current Employment Statistics, which covers payrolls in nonfarm establishments in the 50 U.S. states and the District of Columbia. BLS data used in this InfoBrief exclude workers in government and in banks and other depository institutions. Employment is the total number of persons on establishment payrolls employed full or part time who received pay for any part of the survey reference period. See http://www.bls.gov/ces/home.htm for detailed information.

R&D Employment
NSF defines R&D employees as scientists and engineers with R&D functions. Scientists and engineers are defined as persons engaged in scientific or engineering work at a level of knowledge or experience equivalent to completion of a 4-year college degree with a major in a science or engineering field (regardless of formal degree). R&D employment estimates are annual averages reported for January in two consecutive years and are based on full-time equivalents.

BEA international investment surveys define R&D employees as scientists, engineers, and other professional and technical employees, including managers, who spend all or a majority of their time engaged in scientific or engineering R&D work. Their R&D activities require knowledge of physical sciences, engineering, or mathematics at least equivalent to that acquired through completion of a 4-year college degree with a major in one of these fields (training may be either formal or by experience).

References

National Science Board (NSB). 2004. Science and Engineering Indicators 2004, Volume I, NSB 04-01. Arlington, VA: National Science Foundation.

National Science Foundation (NSF). 2003. U.S. Industry Sustains R&D Expenditures During 2001 Despite Decline in Performers' Aggregate Sales, NSF 04-301. By Raymond M. Wolfe. Arlington, VA.

National Science Foundation (NSF). 2004. U.S.-China R&D Linkages: Direct Investment and Industrial Alliances in the 1990s, NSF 04-306. By Francisco Moris. Arlington, VA.

For more information, contact

Francisco Moris
Research and Development Statistics
Division of Science Resources Statistics
National Science Foundation
4201 Wilson Boulevard, Suite 965
Arlington, VA 22230
703-292-4678
fmoris@nsf.gov

Footnotes

[1] For example, to report its FTE R&D scientists and engineers, a company with 60 scientists and engineers who devoted one-fourth of their time to R&D projects would add 15 to the number of scientists and engineers engaged in R&D activities on a full-time basis.

[2] R&D expenditures include costs related to wages, materials and supplies, and depreciation but do not include capital expenditures. See the NSF Industrial Research and Development Information System (IRIS), available at http://www.nsf.gov/statistics/iris/.

[3] Ongoing research at NSF strongly implies that much of trade R&D can be attributed to activities not related to trade. See NSF 2003:3.

[4] BEA data in this section are for nonbank affiliates in the 50 U.S. states, the District of Columbia, Puerto Rico, and U.S. territories that are owned at least 10 percent by foreign companies. 2001 data are preliminary. Source: Survey of Foreign Direct Investment in the United States, http://www.bea.doc.gov/bea/di/di1fdiop.htm.

[5] Year-to-year changes in operational data of MNCs can result from cross-border mergers and acquisitions, establishment of new facilities, or activities in existing facilities.

[6] R&D employment data from the BEA Survey of U.S. Direct Investment Abroad are available only every 5 years from benchmark surveys, in contrast to R&D expenditure data, which are available annually. BEA data in this section are for nonbank U.S. parent companies and their nonbank majority-owned foreign affiliates (affiliates in which the combined ownership of all U.S. parents is more than 50 percent). Source: Survey of U.S. Direct Investment Abroad, http://www.bea.doc.gov/bea/di/di1usdop.htm.

[7] In 2001 U.S. MNCs performed $162,948 million in R&D activities: $143,546 million (88 percent) by parent companies domestically and $19,402 million (12 percent) by their overseas affiliates. 2001 data are preliminary.

Contact SRS

National Science Foundation, Division of Science Resources Statistics
Industrial R&D Employment in the United States and in U.S. Multinational Corporations
Arlington, VA (NSF 05-302) [December 2004]