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

  • Marin, Dalia

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 labour and IT jobs. Using new firm-level data, this Paper examines whether these fears are justified for Austria and Germany - two countries neighbouring Eastern enlargement. We find that Eastern enlargement leads to surprisingly 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. We also find, however, that multinational firms in Austria and Germany are outsourcing the most skill-intensive activities to Eastern Europe taking advantage of cheap, abundant skilled labour in there. We find that the firms’ outsourcing activities to Eastern Europe are a response to a human capital scarcity in Austria and Germany that became 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 accounted for 10% of Germany’s and 48% 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 liberalizing high-skill labour movement with Eastern enlargement.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4358.

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Date of creation: Mar 2004
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Handle: RePEc:cpr:ceprdp:4358
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  1. Marin, Dalia, 1995. "Learning and Dynamic Comparative Advantage: Lessons from Austria's Postwar Pattern of Growth for Eastern Europe," Discussion Papers in Economics 610, University of Munich, Department of Economics.
  2. Marin, Dalia & Verdier, Thierry, 2012. "Globalization and the empowerment of talent," Journal of International Economics, Elsevier, vol. 86(2), pages 209-223.
  3. Braconier, Henrik & Ekholm, Karolina, 2000. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 448-61, August.
  4. Fersterer, Josef & Winter-Ebmer, Rudolf, 2003. "Are Austrian returns to education falling over time?," Labour Economics, Elsevier, vol. 10(1), pages 73-89, February.
  5. Hofer, Helmut & Pichelmann, Karl & Schuh, Andreas-Ulrich, 1998. "Price and Quantity Adjustments in the Austrian Labour Markets," Economics Series 57, Institute for Advanced Studies.
  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. James R. Markusen & Anthony J. Venables, 1996. "The Theory of Endowment, Intra-Industry, and Multinational Trade," NBER Working Papers 5529, National Bureau of Economic Research, Inc.
  8. 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.
  9. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  10. 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.
  11. 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.
  12. 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.
  13. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
  14. 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.
  15. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
  16. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  17. Bourguignon, Francois & Coyle, Diane & Fernàndez, Raquel & Giavazzi, Francesco & Marin, Dalia & O’Rourke, Kevin & Portes, Richard & Seabright, Paul & Venables, Anthony & Verdier, Thierry & Winters, L., . "Making Sense of Globalization: A Guide to the Economic Issues," Monographs in Economics, University of Munich, Department of Economics, number 20240.
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