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


Egger, H; Egger, P (2003). Outsourcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain. Oxford Economic Papers, 55(4):625-643.

Abstract

We set up a model, in which firms in a small industrialized country outsource part of their production to a foreign economy, which is rich in low-skilled labour. We analyse, how a decline in trade costs affects outsourcing activities and the production structure in the small economy. A stimulation of cross-border outsourcing raises wage dispersion and, if labour markets are unionized, also the employment of high-skilled relative to low-skilled labour. Using a panel of Austrian industries, we find, first, that decreasing trade barriers - as observed after the fall of the Iron Curtain - indeed stimulate outsourcing to Central and Eastern Europe and the former Soviet Union, and, second, that outsourcing to these countries significantly shifts relative employment in favour of high-skilled labour.

We set up a model, in which firms in a small industrialized country outsource part of their production to a foreign economy, which is rich in low-skilled labour. We analyse, how a decline in trade costs affects outsourcing activities and the production structure in the small economy. A stimulation of cross-border outsourcing raises wage dispersion and, if labour markets are unionized, also the employment of high-skilled relative to low-skilled labour. Using a panel of Austrian industries, we find, first, that decreasing trade barriers - as observed after the fall of the Iron Curtain - indeed stimulate outsourcing to Central and 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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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2003
Deposited On:30 Apr 2008 09:03
Last Modified:05 Apr 2016 12:22
Publisher:Oxford University Press
ISSN:0030-7653
Additional Information:The accepted manuscript a pre-copy-editing, author-produced PDF of an article accepted for publication in Oxford Economic Papers following peer review. The definitive publisher-authenticated version (Oxford Economic Papers, 55(4):625-643) is available online at: http://oep.oxfordjournals.org/cgi/content/abstract/55/4/625.
Publisher DOI:10.1093/oep/55.4.625
Permanent URL: http://doi.org/10.5167/uzh-2287

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