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'A Nation of Poets and Thinkers' - Less So with Eastern Enlargement? Austria and Germany

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Marin, Dalia

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Abstract

Many people in the European Union fear that Eastern Enlargement will lead to major job losses. More recently, these fears about job losses have extended to high skill labor and IT jobs. The paper examines with new firm level data whether these fears are justified for the two neighboring countries of Eastern Enlargement Austria and Germany. We find that Eastern Enlargement leads to surprising small job losses, because jobs in Eastern Europe do not compete with jobs in Austria and Germany. Low cost jobs of affiliates in Eastern Europe help Austrian and German firms to stay competitive in an increasingly competitive environment. However, we also find that multinational firms in Austria and Germany are outsourcing the most skill intensive activities to Eastern Europe taking advantage of cheap abundant skilled labor in Eastern Europe. We find that the firms' outsourcing activities to Eastern Europe are a response to a human capital scarcity in Austria and Germany which has become particularly severe in the 1990s. Corporations' outsourcing of skill intensive firm activity to Eastern Europe has helped to ease the human capital crisis in both countries. We find that high skilled jobs transferred to Eastern Europe account for 10 percent of Germany's and 48 percent of Austria's supply of university graduates in the 1990s. We then discuss what can be done to address the skill exodus to Eastern Europe. We show that R&D subsidies do not work in economies with a skill crisis and we suggest to liberalize the movement of high skill labor with Eastern Enlargement.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 329.

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Date of creation: Mar 2004
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Handle: RePEc:lmu:muenec:329

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Related research
Keywords: capital; intra-firm trade; multinationals and jobs; out-sourcing to Eastern Europe; R&D policy;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
O3 - Economic Development, Technological Change, and Growth - - Technological Change
P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Linkages

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
    Other versions:
  2. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September. [Downloadable!] (restricted)
  3. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
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  4. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Marin, Dalia, 1995. "Learning and Dynamic Comparative Advantage: Lessons from Austria's Post-war Pattern of Growth for Eastern Europe," CEPR Discussion Papers 1116, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Marin, Dalia & Verdier, Thierry, 2003. "Globalization and the Empowerment of Talent," CEPR Discussion Papers 4129, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Hofer, Helmut & Pichelmann, Karl & Schuh, Andreas-Ulrich, 2001. "Price and Quantity Adjustments in the Austrian Labour Market," Applied Economics, Taylor and Francis Journals, vol. 33(5), pages 581-92, April. [Downloadable!] (restricted)
  8. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
  10. Braconier, Henrik & Ekholm, Karolina, 2000. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Review of International Economics, Blackwell Publishing, vol. 8(3), pages 448-61, August. [Downloadable!] (restricted)
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  11. Marin, Dalia & Lorentowicz, Andzelika & Raubold, Alexander, 2002. "Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?," Discussion Papers in Economics 72, University of Munich, Department of Economics. [Downloadable!]
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  12. David T. Coe & Elhanan Helpman, 1993. "International R&D Spillovers," IMF Working Papers 93/84, International Monetary Fund.
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  13. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
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  14. Fersterer, Josef & Winter-Ebmer, Rudolf, 2003. "Are Austrian returns to education falling over time?," Labour Economics, Elsevier, vol. 10(1), pages 73-89, February. [Downloadable!] (restricted)
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  15. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Becker, Sascha O. & Ekholm, Karolina & Jäckle, Robert & Muendler, Marc-Andreas, 2005. "Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals," CEPR Discussion Papers 4887, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Ángel Melguizo & David Taguas, 2004. "La ampliación europea al Este, mucho más que economía," Working Papers 401, BBVA Bank, Economic Research Department. [Downloadable!]
  3. Ingo Geishecker & Holger Görg & Jakob Roland Munch, 2008. "Do labour market institutions matter? Micro-level wage effects of international outsourcing in three European countries," Kiel Working Papers 1404, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  4. Barba Navaretti, Giorgio & Castellani, Davide & Disdier, Anne-Célia, 2006. "How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy," CEPR Discussion Papers 5765, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Disdier, Anne-Célia & Mayer, Thierry, 2005. "Je T'aime, Moi Non Plus: Bilateral Opinions and International Trade," CEPR Discussion Papers 4928, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Lars Calmfors & Giancarlo Corsetti & John Kay & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2005. "Chapter 2: Outsourcing," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 39-50, 03. [Downloadable!]
  7. Marin, Dalia, 2005. "A New International Division of Labor in Europe: Offshoring and Outsourcing to Eastern Europe," Discussion Papers in Economics 714, University of Munich, Department of Economics. [Downloadable!]
  8. Andzelika Lorentowicz & Dalia Marin & Alexander Raubold, 2005. "Is Human Capital Losing From Outsourcing? Evidence for Austria and Poland," Discussion Papers 76, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  9. Assar Lindbeck, 2005. "Sustainable Social Spending," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Marin, Dalia & Schnitzer, Monika, 2006. "When is FDI a Capital Flow?," CEPR Discussion Papers 5755, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Wilhelm Kohler, 2007. "The Bazaar Effect, Unbundling of Comparative Advantage, and Migration," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Dalia Marin, 2005. "A New International Division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe," Discussion Papers 80, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  13. Michael Hübler, 2007. "A Simple Model of Outsourcing with Cournot Competition," Kiel Working Papers 1320, Kiel Institute for the World Economy. [Downloadable!]
  14. Desiree van Welsum & Xavier Reif, 2006. "We Can Work It Out - The Globalisation of ICT-enabled Services," NBER Working Papers 12799, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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