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Western Europe’s Eastern Challenge

In January, the European Union expanded eastward once again. Following the “Big Bang” enlargement of 2004, which added 75 million new EU citizens, the accession of Romania and Bulgaria has added 30 million more. What does this mean for the labour markets of Western Europe? Politicians tend to argue that, although some plumbers migrate to the West and companies relocate to the East, the West will enjoy more jobs in net terms due to the likely expansion of its exports. That reasoning is familiar, but is it correct?

One thing is certain: enlargement has confronted Western Europe with extremely stiff wage competition. Whereas an employee in the old EU’s manufacturing sector on average earns €26.09 per hour, in Romania the average is €1.60 and in Bulgaria a mere €1.39.

The view that eastward enlargement will create jobs in the West assumes that East European low-wage workers will complement, and boost demand for, West European workers. In fact, this is partly the case. West European engineers are needed to design world-class products to be manufactured by East European workers, while people with managerial skills can be sure that their abilities will be needed to integrate the EU’s newest workers into the European economy.

But for the great majority of workers who have only their normal labor to sell, East European employees are actually substitutes, not complements. They find themselves confronted by low-wage competition from people who have similar skills and ambitions, and are consequently likely to lose ground from enlargement. According to empirical studies, the group of losers ranges from low-skilled to skilled workers with a completed educational training.