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

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  • Marin, Dalia

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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Bibliographic Info

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

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  1. Dalia Marin & Thierry Verdier, 2003. "Globalization and the empowerment of talent," DELTA Working Papers 2003-32, DELTA (Ecole normale supérieure).
  2. 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.
  3. Fersterer, Josef & Winter-Ebmer, Rudolf, 1999. "Are Austrian Returns to Education Falling Over Time?," CEPR Discussion Papers 2313, C.E.P.R. Discussion Papers.
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  5. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
  6. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  7. Helmut Hofer & Karl Pichelmann & Andreas-Ulrich Schuh, 2001. "Price and quantity adjustments in the Austrian labour market," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 581-592.
  8. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
  9. 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.
  10. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  11. Braconier, Henrik & Ekholm, Karolina, 1999. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Working Paper Series 523, Research Institute of Industrial Economics.
  12. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers 0012, Bureau of Economic Analysis.
  13. 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.
  14. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  15. Lorentowicz, Andzelika & Marin, Dalia & Raubold, Alexander, 2002. "Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?," CEPR Discussion Papers 3515, C.E.P.R. Discussion Papers.
  16. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
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