Chapter 2: Outsourcing

This chapter is devoted to the widely debated topic of outsourcing of production and jobs from the Western EU member countries to the new member countries and also to the rest of the world. This trend is clearly visible in the manufacturing sector in the European Union. Outsourcing is mainly a consequence of the trade integration of ex-communist countries as well as other producers that offer their labour at low cost. While outsourcing can bring benefits from increased international trade and division of labour, these benefits may not materialise fully given the labour market rigidities in many Western EU countries. These rigidities may induce outsourcing to overshoot its optimal level and destroy more jobs than can be created in other parts of the economy.