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

  • Hartmut Egger

    ()

    (University of Regensburg, Germany)

  • Peter Egger

    ()

    (Austrian Institute of Economic Research, Vienna)

We present a model, in which a small industrialised economy outsources part of its production into a small foreign country which is well endowed with low-skilled labour. We analyse under which conditions sinking trade costs stimulate outsourcing activities, thereby increasing the wage dispersion and, if labour markets are unionised, also the employment of high-skilled relative to low-skilled labour. For a panel of Austrian industries, we find first that decreasing trade barriers, which can be associated with the fall of the Iron Curtain, indeed stimulate outsourcing to Eastern Europe and the former Soviet Union, and second, that outsourcing to these countries significantly shifts relative employment in favour of high- skilled labour.

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File URL: http://www.econ.jku.at/papers/2000/wp0024.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2000-24.

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Date of creation: Oct 2000
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Handle: RePEc:jku:econwp:2000_24
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