President Obama in his State of the Union address last night said that “it’s time to stop rewarding businesses that ship jobs overseas.”  Joblessness is arguably the biggest challenge facing our country, but to what degree is offshoring the cause of job loss?

As a matter of fact, the movement of jobs to foreign locations accounts for a tiny fraction of layoffs. For example, the Bureau of Labor Statistics reported the separation of 184,493 workers from their jobs in the third quarter of 2011 in “mass layoffs” (i.e., layoffs of 50 or more workers). However, only 110 of these layoffs resulted from movement of work to an overseas location (see Table 10). That’s 0.0006% of the total.

Further, the U.S. Department of Commerce reports that U.S. multinational corporations — that is, U.S. companies with operations in the United States and at least one other country — added 675,000 U.S. jobs during the five years ending in 2009 (the most recent data available). That’s a remarkable performance considering the overall U.S. economy shed three million jobs over the same period.

So if multinational companies aren’t investing abroad to tap cheap foreign labor, why are they doing it?  Mostly U.S. firms invest abroad when they see sales opportunities that simply can’t be captured by exporting. This includes many services as well as manufacturing operations for goods, such as detergent or potato chips, which generally can’t be exported due to high transportation costs or barriers to trade.

More facts: Just 8.9% of the production of foreign affiliates of U.S. multinationals is sold in the U.S. market, according to the same Commerce Department report. Generally speaking, what’s made abroad stays abroad.

Again, unemployment is the biggest challenge we face today. But to cure the disease, we first need a correct diagnosis.