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Globalization, EU Enlargement and Income Distribution

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  • Fritz Breuss

Abstract

Advanced industrial countries have been exhibiting a steady decline of the labour income shares in the last two decades. The study explains this phenomenon by resorting to the old Stolper-Samuelson theorem. The conclusions concerning the impact of free trade on the income distribution are unambiguous in a Heckscher-Ohlin world with two countries, two goods and two factors of production (capital and labour). In contrast, the consequences of FDI from the capital abundant country (EU) to the labour abundant CEECs are ambiguous. Both scenarios are investigated theoretically and then simulated with a hypothetical two-country CGE model, including the EU and the CEECs. A panel regression for both regions separately helps to decide empirically which influences on the development of the labour income shares are at work. Globalisation, measured by revealed comparative advantage (increase in global net trade) has contributed to a decline in the labour income shares in the EU. Additionally, those countries which are engaged more in trade with the CEECs can expect a sharper decline in the wage share. Global net FDI outflow also exerts a negative influence on the labour income share in the EU. In the CEECs the increase in global net trade had a positive influence on the labour income share, trade with the EU, however, dampened the labour income share. FDI inflow increased the labour income share in the CEECs.

Suggested Citation

  • Fritz Breuss, 2007. "Globalization, EU Enlargement and Income Distribution," WIFO Working Papers 296, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2007:i:296
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    References listed on IDEAS

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    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    2. Hartmut Egger & Peter Egger, 2002. "How international outsourcing drives up Eastern European wages," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(1), pages 83-96, March.
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    4. Peter Egger & Mario Larch & Michael Pfaffermayr, 2007. "Bilateral versus Multilateral Trade and Investment Liberalisation," The World Economy, Wiley Blackwell, vol. 30(4), pages 567-596, April.
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    7. Özlem Onaran & Engelbert Stockhammer, 2006. "The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis," Department of Economics Working Papers wuwp094, Vienna University of Economics and Business, Department of Economics.
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    Cited by:

    1. Özlem Onaran, 2008. "The Effects of Globalization on Wages, Employment, and Wage Share in Austria," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 34(3), pages 337-360.
    2. Christine Mayrhuber & Christian Glocker & Thomas Horvath & Silvia Rocha-Akis, 2015. "Entwicklung und Verteilung der Einkommen in Österreich," WIFO Studies, WIFO, number 50897.
    3. Özlem Onaran, 2012. "The Effect of Foreign Affiliate Employment on Wages, Employment, and the Wage Share in Austria," Review of Political Economy, Taylor & Francis Journals, vol. 24(2), pages 251-271, April.
    4. Alfred Greiner, 2011. "Economic Growth, Public Debt and Welfare: Comparing Three Budgetary Rules," German Economic Review, Verein für Socialpolitik, vol. 12(2), pages 205-222, May.
    5. Rainer Eppel & Thomas Leoni & Helmut Mahringer, 2017. "Österreich 2025 – Segmentierung des Arbeitsmarktes und schwache Lohnentwicklung in Österreich," WIFO Monatsberichte (monthly reports), WIFO, vol. 90(5), pages 425-439, May.
    6. Fritz Breuss, 2013. "Europa als Global Player," WIFO Working Papers 455, WIFO.
    7. Fritz Breuss, 2018. "25 Years Single Market: Which Trade and Growth Effects?," WIFO Working Papers 572, WIFO.
    8. Fritz Breuss, 2009. "An evaluation of the EU's Fifth Enlargement With special focus on Bulgaria and Romania," European Economy - Economic Papers 2008 - 2015 361, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    9. Onaran, Özlem, 2008. "The effect of import penetration on labor market outcomes in Austrian manufacturing industry," Department of Economics Working Paper Series 119, WU Vienna University of Economics and Business.
    10. Alois Guger & Thomas Leoni, 2008. "Die Entwicklung der Einkommen und der Einkommensverteilung in Oberösterreich," WIFO Studies, WIFO, number 39955.
    11. Engelbert Stockhammer & Stefan Ederer, 2008. "Demand effects of the falling wage share in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(5), pages 481-502, December.
    12. Peter Josef Stauvermann & Ronald Ravinesh Kumar & Syed Jawad Hussain Shahzad & Nikeel N. Kumar, 2018. "Effect of tourism on economic growth of Sri Lanka: accounting for capital per worker, exchange rate and structural breaks," Economic Change and Restructuring, Springer, vol. 51(1), pages 49-68, February.
    13. Christian Beer & Christian Alexander Belabed & Andreas Breitenfellner & Christian Ragacs & Beat Weber, 2017. "EU integration and its impact on Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/2017, pages 1-38.
    14. Thomas Leoni, 2017. "Entwicklung und Struktur der Arbeitskosten und der Lohnstückkosten 2000 bis 2015. Ein kommentierter Datenüberblick," WIFO Studies, WIFO, number 60586.
    15. Christian Beer & Christian Alexander Belabed & Andreas Breitenfellner & Christian Ragacs & Beat Weber, 2017. "Österreich und die europäische Integration," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 86-126.
    16. Fritz Breuss, 2012. "EU-Mitgliedschaft Österreichs. Eine Evaluierung in Zeiten der Krise," WIFO Studies, WIFO, number 45578.
    17. Fritz Breuss, 2020. "Makroökonomische Effekte der 25- jährigen EU-Mitgliedschaft Österreichs," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/20, pages 27-48.
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    More about this item

    Keywords

    EU Enlargement; Globalisation; Income distribution;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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