Is Human Capital Losing from Outsourcing? Evidence for Austria and Poland

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 labor 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 workers. Furthermore, we show that Austria’s R&D policy has contributed to an increase in the skill premium there.

• Item Type: Paper (Discussion Paper)
• Keywords: foreign direct investment ; wage inequality ; transition economy
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > International Trade; Economics > Discussion Papers in Economics > Economic Policy
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: F21, F23, J31, P45
• Language: English