Publikation

The Effects of Globalization on Employment, Wages and the Wage Share in Austria

This paper estimates the employment and wage effects of foreign trade and Austrian outward FDI on employment, wages, and the wage share in Austria. In the last fifteen years there has been a significant increase in the globalization of the Austrian economy through an increase in exports, final imports, offshoring (intermediate imports), and outward Foreign Direct Investment (FDI). The integration of the Central and Eastern Europe (CEECs) to the European economic sphere, added a new dimension to the globalization of the Austrian economy, although Austrian trade and FDI towards Western Europe also increased significantly during this period. In the meantime the increase in unemployment and stagnation in real wages attracted public attention to globalization, and in particular Eastern enlargement and brought up the following question: Did globalization or in particular offshoring or FDI to the CEECs by Austrian firms destroy jobs in Austria? Indeed Austria also experienced a dramatic change in the functional income distribution at the expense of labor in the last three decades: The wage share (labor compensation/gross value added in non-agricultural sector) declined from a level of 72% in 1978 to 54.9% as of 2005. The decline in labor share is not specific to Austria, albeit it has experienced one of the steepest declines in the EU. The gains from trade and enlargement in terms of growth have gone along with a worsening of functional distribution of income. In this study we focus on the effects of globalization to analyze how much of this decline is related to increased imports, offshoring in particular, and Austrian outward FDI.