International Outsourcing and the Skill-Specific Wage Bill in Eastern Europe

Abstract

The paper analyses the effects of international fragmentation in terms of intermediate goods trade on the dynamics of skill-specific real wage bills in manufacturing of three Central and East European countries (Hungary, Poland, the Czech Republic). Both intermediate goods exports and imports of the CEECs exhibit a positive impact on the unskilled workers' wage bill. Since 1993, intermediate goods trade with the European Union alone has accounted for a reduction of about 58 per cent of the predicted annual change in the skilled-to-unskilled wage bill ratio in Hungary's manufacturing. The corresponding contribution was 31 per cent in the Czech Republic and 30 per cent in Poland.