Working Paper: CEPR ID: DP5344
Authors: Andzelika Lorentowicz; Dalia Marin; Alexander Raubold
Abstract: Feenstra and Hanson (1997) have argued in the context of the North American Free Trade Agreement that US outsourcing to Mexico leads to an increase in the skill premium in both the US and Mexico. In this paper we show on the example of Austria and Poland that with the new international division of labour emerging in Europe Austria, the high income country, is specializing in the low skill intensive part of the value chain and Poland, the low income country, is specializing in the high skill part. As a result, skilled workers in Austria are losing from outsourcing, while gaining in Poland. In Austria, relative wages for human capital declined by 2 percent during 1995-2002 and increased by 41 percent during 1994-2002 in Poland. In both countries outsourcing contributes roughly 35 percent to these changes in the relative wages for skilled worker. Furthermore, we show that Austria's R&D policy has contributed to an increase in the skill premium there.
Keywords: Foreign Direct Investment; Transition Economics; Wage Inequality
JEL Codes: F21; F23; J31; P45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Outsourcing (L24) | Relative wages for skilled workers in Austria (J31) |
| Outsourcing (L24) | Relative wages for skilled workers in Poland (J31) |
| Outsourcing (L24) | Demand for high-skilled labor in Austria (J24) |
| Outsourcing (L24) | Demand for high-skilled labor in Poland (J24) |
| R&D policy (O38) | Skill premium in Austria (J24) |
| R&D subsidies (O38) | Relative wage bill of high-skilled workers in Austria (J39) |
| FDI (F23) | Demand for high-skilled labor in Poland (J24) |