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The International Fragmentation of the Value Added Chain. The Effects of Outsourcing to Eastern Europe on Productivity, Employment and Wages in Austrian Manufacturing

Author

Listed:
  • Peter Egger

    (WIFO)

  • Michael Pfaffermayr
  • Yvonne Wolfmayr-Schnitzer

Abstract

The study provides a survey on recent theories on fragmentation of production across borders. Theory does not provide an unambiguous determination of the distribution effects of outsourcing, and the aggregate welfare effects are not easy to estimate empirically. For Austrian manufacturing industries the share of Eastern countries in imports increased by 6.8 percent p. a., that of exports by about 6.4 percent p. a. on average between 1990 and 1998. During the same period outsourcing to the East in terms of Austrian gross production grew by 10.7 percent p. a. which was mainly due to a substitution of domestic and third-country (non-East) inputs rather than to increased fragmentation. The econometric estimates indicate that outsourcing to the East significantly improves domestic growth in total factor productivity and markedly increases domestic employment of high-skilled relative to low-skilled labour while mandated wage regressions lead to the conclusion that in the presence of perfect factor markets wages would be lower for the low-skilled workers. The negative labour market effects from outsourcing to the Eastern countries on the volume of employment are small. The most important impact will be on the structure of employment and wages (low-skilled versus high-skilled labour). Policies towards higher wage flexibility and inter-sectoral mobility of workers could have some moderating effects on employment losses, especially for low-skilled workers. Economic policy should support structural change which gets an additional impetus from outsourcing.

Suggested Citation

  • Peter Egger & Michael Pfaffermayr & Yvonne Wolfmayr-Schnitzer, 2001. "The International Fragmentation of the Value Added Chain. The Effects of Outsourcing to Eastern Europe on Productivity, Employment and Wages in Austrian Manufacturing," WIFO Studies, WIFO, number 19664, April.
    • Handle: RePEc:wfo:wstudy:19664
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    File URL: https://www.wifo.ac.at/wwa/pubid/19664
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    Citations

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    Cited by:

    1. Kemal Türkcan, 2009. "Vertical Intra-Industry Trade: An Empirical Examination of the Austria’s Auto-Parts Industry," FIW Working Paper series 030, FIW.
    2. Christian Bellak, 2001. "Multinational Enterprises and Their Domestic Counterparts: Past Research, Current Issues and Future Directions," Working Papers geewp18, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    3. Gudrun Biffl, 2006. "Age Management – a Coping Strategy for Employers. The Case of the Automotive Industry," WIFO Working Papers 274, WIFO.
    4. Michael Klien & Michael Böheim & Matthias Firgo & Andreas Reinstaller & Peter Reschenhofer & Yvonne Wolfmayr, 2021. "Stärkung der Unabhängigkeit des Wirtschaftsstandortes Österreich bei kritischen Produkten," WIFO Studies, WIFO, number 67234, February.
    5. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.
    6. Wilfried Altzinger & Peter Egger & Peter Huber & Kurt Kratena & Michael Pfaffermayr & Michael Wüger, 2000. "Teilprojekt 5: Transnationale Direktinvestitionen und Kooperationen," WIFO Studies, WIFO, number 19587, February.
    7. Christian Bellak, 2004. "The Impact of Enlargement on the Race for FDI," Department of Economics Working Papers wuwp086, Vienna University of Economics and Business, Department of Economics.
    8. Christian Bellak, 2004. "How Domestic and Foreign Firms Differ and Why Does it Matter?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 483-514, September.
    9. Michael Pfaffermayr & Christian Bellak, 2002. "Why Foreign-owned Firms are Different: A Conceptual Framework and Empirical Evidence for Austria," Palgrave Macmillan Books, in: Rolf Jungnickel (ed.), Foreign-owned Firms, chapter 2, pages 13-57, Palgrave Macmillan.
    10. Kurt Kratena & Michael Wüger, 2001. ""Outsourcing", Wettbewerbsfähigkeit und Beschäftigung. Abbildung der Effekte in einem Sektormodell der österreichischen Sachgüterproduktion," WIFO Monatsberichte (monthly reports), WIFO, vol. 74(4), pages 269-280, April.
    11. Yvonne Wolfmayr & Kurt Kratena & Peter Mayerhofer & Jan Stankovsky, 2006. "Teilstudie 13: Exporte von Waren und Dienstleistungen stärken die Nachfrage," WIFO Studies, WIFO, number 27452, April.
    12. Ayesha Ashraf & Nadia Doytch, 2023. "Does investing abroad reduce the ecological footprints at home? Analysis of outward GFDI and M&A from developed and developing countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(7), pages 6689-6710, July.
    13. Özlem Onaran, 2007. "The effects of globalization on income distribution," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 100, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    14. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.
    15. Apostolov Mico & Scagnelli Simone Domenico, 2019. "Foreign-Versus Domestic-Owned firms in the Predicament ‘Cui bono?’," Business Systems Research, Sciendo, vol. 10(2), pages 18-36, September.
    16. Kemal Türkcan, 2011. "Vertical Intra-Industry Trade and Product Fragmentation in the Auto-Parts Industry," Journal of Industry, Competition and Trade, Springer, vol. 11(2), pages 149-186, June.
    17. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.

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