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Outsourcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain

  • Hartmut Egger
  • Peter Egger

We set up a model, in which firms in a small industrialized country outsource part of their production to a foreign economy, which is rich in low-skilled labour. We analyse, how a decline in trade costs affects outsourcing activities and the production structure in the small economy. A stimulation of cross-border outsourcing raises wage dispersion and, if labour markets are unionized, also the employment of high-skilled relative to low-skilled labour. Using a panel of Austrian industries, we find, first, that decreasing trade barriers--as observed after the fall of the Iron Curtain--indeed stimulate outsourcing to Central and Eastern Europe and the former Soviet Union, and, second, that outsourcing to these countries significantly shifts relative employment in favour of high-skilled labour. Copyright 2003, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 55 (2003)
Issue (Month): 4 (October)
Pages: 625-643

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Handle: RePEc:oup:oxecpp:v:55:y:2003:i:4:p:625-643
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