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

50 Pages Posted: 14 May 2004

See all articles by Dalia Marin

Dalia Marin

Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

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Date Written: March 2004

Abstract

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.

Keywords: Outsourcing to Eastern Europe, intra-firm trade, multinationals and jobs, human capital, R&D policy

JEL Classification: F21, F23, J24, J31, L24, O3, P33

Suggested Citation

Marin, Dalia, A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany (March 2004). CEPR Discussion Paper No. 4358. Available at SSRN: https://ssrn.com/abstract=546542

Dalia Marin (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2446 (Phone)
+49 89 2180 6227 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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