Internationalization of Production in Central European Countries: What Are the Consequences for the Labor Market?

The CEE4 countries are among the most internationalized economies in the EU.Due to their high dependence on foreign final demand, particularly in the automotive sector, their labor markets are closely linked to the dynamics of the global economy.Therefore, the main objective of this study is to examine how internationalization of production (represented by offshoring) and skill-biased technological change (represented by the intensity of investments in intangible capital) impact the labor market, specifically the employment of various skill levels in CEE4 countries.We estimate employment shares equations for the three labor types derived from a translog cost function using panel data regression.The regression analysis of the panel data indicates that offshoring has a negative impact on the employment share of low-and medium-skilled labor, while having a positive impact on the employment share of high-skilled labor.Furthermore, there has been evidence that offshoring strikes low-skilled labor hardest.Furthermore, it has been confirmed that the increasing intensity of investment in intangible assets has a negative effect on the employment share of low and medium skilled labor.Our study reveals different effects of off-shoring and technological change on labor markets in the CEE4 countries.This can be important information for policy makers as well as companies that need to understand the trends of the labor market to support future developments.Furthermore, it can be an important lesson for countries that will follow a similar path of internationalization of production.