Outsourcing, Competitiveness and Employment. Effects mapped with a Sector Model of Austrian Manufacturing

With the Austrian economy becoming more integrated into Eastern Central Europe, manufacturing steps are being shifted to Eastern Europe (outsourcing or "fragmentation"), following the intermediate step of lower costs payable for imported materials and services. Outsourcing impacts directly and negatively on domestic employment, yet simultaneously raises both output and employment indirectly as a consequence of lower costs at the macroeconomic level. This indirect effect is produced by cost savings, which in turn change output prices and thus improve competitiveness (on all markets).