Analysis from Martin Myant at the European Trade Union Institute :
Lower wages in Central and Eastern Europe are the result of past policies and of the weak bargaining power of labour.
Multinational companies benefit directly by making higher profits but also indirectly by reducing the prices of outsourced products.
They transfer production mostly of cheaper products, retaining the most expensive in higher-wage countries.
As a result, productivity is measured as lower where wages are lower, even in cases where production processes are the same.
Without an increase in wages, accompanied by a more general shift in economic strategy, the countries of central and eastern Europe will remain in a 'middle-income trap', never able to converge to the western European level
A key point is that wages are not closely linked to labour productivity. This is contrary to what is predicted in standard economic theory and also calls into question policy advice that wages should only rise when preceded by a productivity increase.
The four countries of the Visegrad Group: Czechia, Hungary, Poland and Slovakia. They are at very similar economic levels and have similar nominal wage levels at roughly one third that of Germany.
Wages in foreign-owned companies are not determined by the productivity of the employees. That cannot be the case when some profit levels are so high and when, as argued above in relation to a number of products, measured productivity is often low because of low wages rather than the converse.
Instead, in the first instance, MNCs take the wage levels they find. These have been determined by these countries’ past histories and reflect a going rate in the economy at the time, set at first by domestic employers and then increasingly by other MNCs. The latter may pay slightly more, to attract and retain a stable labour force. They may also face upward pressure on pay levels from market conditions or from labour's bargaining strength, but both are limited.
As they do not choose to transfer production that requires large numbers of the most qualified workers – and this is a good reason for not doing so – specific labour shortages have remained manageable.
Labour’s bargaining power is significantly weakened by the power of an employer with multiple plants. Threats to transfer production, to concentrate investment elsewhere or, ultimately, to close a plant in total, figure persistently as a background to collective bargaining, encouraging moderation from employees.
There is no strong incentive for MNCs to move their most complex activities to CEECs. There are solid reasons for why these remain in the higher-wage countries. Moving carries a financial cost particularly where large capital investment has been made. There would also be political and reputational costs and a skilled labour force would be harder to attract where wage levels and social service provision are lower.
It therefore makes most sense for an MNC to keep activities that require higher-paid personnel in countries where the pay is higher.
The implication is that this form of dependency sets limits to catching up with western Europe. CEECs are left some way behind, and even threatened with further instability as MNCs may move on to still lower-wage countries.
Using the typology of Porter's ‘stages of competitiveness’ (Porter 1990), they do not move into the 'innovation-driven' stage. Innovation almost always comes from the outside, embodied in products and processes designed elsewhere. CEECs are always followers, using established methods and technologies and never leading with the newest.
They are left in a 'middle-income trap', holding down wages to make themselves attractive to MNCs, but in turn leaving themselves unattractive to the higher-level activities that would raise their economies to the western European level.
https://www.etui.org/content/download/33...01-WEB.pdf
![[Image: laugh3.gif]](https://rooshvforum.network/images/smilies/new/laugh3.gif)
![[Image: tard.gif]](https://rooshvforum.network/images/smilies/new/tard.gif)