The demand for skills and labour costs in partner countries

Evidence from the enlarged EU

Authors


  •  A previous version of the paper was circulated under the title: EU enlargement, economic interdependence and the labour markets in old and new member states. We thank the participants of the conference organized by the National Bank of Poland (Warsaw, 2008), PUE-PIEC Workshop (Università Roma Tre, Rome, 2009), the SMYE Conference (Istanbul, 2009), Aarhus Business School Departmental Seminar (Aarhus, 2009), and EEA Conference (Barcelona, 2009) for valuable comments and suggestions. We also thank Stefano Staffolani for his help. Financial support received from the Italian Ministry of Education, University and Research (Scientific Research Programs of National Relevance 2007 on European Union policies, economic and trade integration processes and WTO negotiation) is gratefully acknowledged. Aleksandra Parteka acknowledges the financial support from the Foundation for Polish Science. The two authors contributed equally to this paper. Any remaining errors are ours.

Abstract

We analyse the consequences of trade integration in Europe (1995–2005) detecting how the labour costs in partner countries affect the domestic demand for high- and low-skilled labour in ‘Old’ (EU-15) and five ‘New’ EU member states. In general, independently of the skill level of workers, the results suggest complementarity between domestic and foreign labour. However, when we take into account the typology of sectors, the demand for the high skilled in low skill intensive sectors in ‘New’ EU members is boosted by the increase of the average labour cost in ‘Old’ EU members. Thus in low skill intensive sectors, the high skilled in ‘New’ member countries can substitute for employment in EU-15 countries.

Ancillary