Introduction

The demise of the political system in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) has created a new challenge for the EU – economic integration and enlargement. Eastern enlargement concerns the association of 10 CEE countries (CEECs), the Visegrád-4 (Czech Republic, Hungary, Slovak Republic and Poland), the Balkan-3 (Bulgaria, Rumania and Slovenia) and the Baltic-3 (Estonia, Latvia and Lithuania). The integration issue, however, also covers the other states from the FSU. While enlargement is seen both as a political necessity and a historical opportunity, the economic consequences are not yet well understood. A rising number of EU Member States seem more reluctant to take in new members, often because they fear that such a move will be expensive. One major concern stems from the potential labour market effects of integration and enlargement. Opening markets will encourage factor flows and trade, and hence very likely cause adjustments in wages and employment opportunities in EU economies. Given the ever-rising unemployment rates, and the relative decline of unskilled wages in Western Europe, the Eastern enlargement is seen as a threat to native labour markets. As a result of geography and historical ties, Austria and Germany have already received disproportionately more immigrants and stronger increases of trade flows than other countries. It has to be expected that this trend will continue in any process of economic integration in the East. Hence, the objective of this chapter is to assess present and potential future developments against the background of the Austro-German case.

Two largely separated strands of literature have investigated the effects of trade and migration on native labour markets.