Spatial effects of open borders on the Czech labour market

Abstract

"Hardly analysed in the literature the fall of the Iron Curtain had also effects on the regional structures of the labour markets in the Central and Eastern European Countries (CEEC). Focusing on the Czech Republic I analyse whether during the undoubtedly increasing integration of markets the Czech border region close to the Western European high-wage countries benefited from its geographical position. Even without transnational free labour mobility, free trade and outsourcing of production activities can lead to shifts in the labour demand and wage structure with respect to different skill groups. According to the theoretical background these integration effects should be stronger in border regions. Regarding the theoretical assessment about the development of labour demand in transition countries the Feenstra-Hanson model suggests that in CEEC regions close to EU-15 countries wages should increase above-average for higher skilled employees. In contrast to new trade theory new economic geography models try to predict the spatial consequences of international integration caused by different regional effects on the market potential within a country. Explicitly differentiating between interior and border regions and regarding skill groups the border regions will above all attract activities where direct import competition is unlikely to be strong. Using data from the Czech Microcensus and quarterly district level data I investigate what impact the fall of the Iron Curtain has had on the regional differences in unemployment, the skill structure of employment and the wages in the Czech Republic. According to my results there are no indications of disproportionate shifts in the economic structure as well as in the skill structure in the Czech districts neighbouring Bavaria and Austria compared to non-border districts. However, regarding wage differentials between workers employed in the border region and workers in the rest of the country I find evidence that from 1996 until 2002 the workers with the lowest skill degree exhibit in the border region a positive wage differential of around 12% compared to their counterparts in the non-border region, while all other skill groups in the border region feature negative values, the spatial wage gap being higher the higher the skill level is." (Author's abstract, IAB-Doku) ((en))

Cite article

Moritz, M. (2009): Spatial effects of open borders on the Czech labour market. (WIFO working papers 345), Wien, 32 p.