IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Are Wage Cost Differentials Driving Delocalisation?

Listed author(s):
  • Jozef Konings

This paper compares the wage cost and productivity differentials between Belgium and Portugal, being the EU benchmarks for high and low labor costs, with those in the three leading emerging economies of Central and Eastern Europe, Poland, Hungary and the Czech Republic. To this end we use firm level data to construct measures of labor costs and labor productivity. We find that labor costs are more than 5 times larger in Belgium compared to Central and Eastern Europe. But also compared to Portugal, labor costs in Belgium are 4 times larger, indicating that even within the EU there are huge differences in labor costs. However, at the same time labor productivity varies substantially between these regions and there is a close correlation between high wage costs and high labor productivity. Third, we compute a competitiveness index (the ratio of wage costs to labor productivity) and find that by the year 2000, Poland is less competitive than the high income country, Belgium. Furthermore, we find that high labor cost relative to productivity sectors in Belgium are also high labor costs relative to productivity sectors in the other low wage regions, suggesting that the incentives to delocate production from high to low wage regions are not that straightforward. Finally, we estimate firm level labor demand in Belgian manufacturing. We find no evidence that labor costs in Central and Eastern Europe destroy jobs in Belgian firms on average. However, we have some support for the idea that the evolution of labor costs relative to productivity in Portugal has some depressing effect on jobs in Belgian firms, although that such an effect is estimated to be relatively low. The main conclusion of this paper is that on average there is no evidence that low wage competition from Central and Eastern Europe has a negative effect on jobs in Belgian manufacturing.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 13403.

in new window

Length: 16 pages
Date of creation: 2003
Handle: RePEc:lic:licosd:13403
Contact details of provider: Postal:
De BĂ©riotstraat 34, B-3000 Leuven

Phone: +32 (0) 16 / 32 6598
Fax: +32 (0) 16 / 32 6599
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lic:licosd:13403. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.