The EU enlargement and domestic employment

Abstract

We propose a study on the interdependence among EU member states, focusing on their labor markets over the period 1995-2005. Increased accessibility of detailed sector level labor statistics allows us to consider trade based linkages and interaction mechanisms between domestic and foreign employment in manufacturing and tradable business services in "Old" and "New" partners in the EU. From the estimate of the empirical model, the domestic demand for labor in the EU-15 is negatively affected by other "Old" EU members'' average cost of labor and positively affected by the average cost of labor in ''New'' partners: "Old" EU members'' domestic labor then appears as a complement with respect to other "Old" EU partners'' labor and as a substitute with respect to workers in ''New'' members. Finally, employment in the latter group of countries is not really affected by wage conditions in partners regardeless of the level of their development