TRADE INTEGRATION, OUTSOURCING AND EMPLOYMENT IN AUSTRIA: A DECOMPOSITION APPROACH

Outsourcing and trade integration of advanced countries is debated with respect to employment effects, in particular for low educated workers - at least in relative terms. We study the employment effects - differentiated by educational attainment levels - of changes in the patterns of trade integration and outsourcing in the Austrian economy over the periods 1995-2000 and 2000-2005 using hierarchical decomposition analysis based on deflated input-output tables. Outsourcing is modeled as changes in the shares of domestically produced intermediates in total intermediates. A similar decomposition of the final demand vector allows us to draw conclusions on the overall employment effects of trade integration. The results suggest that the expected negative employment effects of outsourcing and rising import penetration have been overcompensated by increasing exports. Thus, the overall employment effects of Austrian trade integration have been positive for all educational attainment groups. However, whereas the total effects have been strongest for medium and high educated workers over the period 1995-2000, employment of low educated workers have been strongest and positively affected over the period 2000-2005. This pattern can be explained by a more sluggish export performance together with stronger negative effects of outsourcing and import penetration in medium and high-skill intensive products.