Chapter 13: The Effects of High-tech Capital, FDI and Outsourcing on Demand for Skills in West and East
Piero Esposito and Robert Stehrer 13.1 INTRODUCTION The changing patterns of relative demand for skills and for workers differentiated by level of educational attainment have attracted a lot of attention in recent years and the debate is far from closed. Changes in relative demand for workers with a high level of education (and to a lesser extent for those with a medium level of education) have been observed either in terms of rising employment shares and/or in terms of rising skill premium. In the literature various causes are discussed to explain these trends. First, increased competition with low-income countries was a matter of concern. This was triggered off in the US by the North American Free Trade Agreement (NAFTA) and the resulting trade liberalization with Mexico as a low-income neighbouring country. In Europe the debate started when the Central and Eastern European countries (CEECs) were integrated into the European division of labour after their transitional recessions. Similarly to the US, Western European countries were facing competition from neighbouring low-income countries; differently, however, from the US–Mexico case these countries were generally well endowed with skilled labour and could also build on a strong manufacturing base. Despite these facts the fear was that trade integration with the Central and Eastern European economies would lead to a relative decrease of demand for low-skill workers in the West due to imports of low-skill-intensive final products and outsourcing (i.e., imports of intermediate products) of low-skill-intensive production stages. Important studies analysing the employment effects of...
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