The demand for skills and labour costs in partner countries

We analyse the consequences of trade integration in Europe (1995–2005) detecting how the labour costs in partner countries affect the domestic demand for high‐ and low‐skilled labour in ‘Old’ (EU‐15) and five ‘New’ EU member states. In general, independently of the skill level of workers, the results suggest complementarity between domestic and foreign labour. However, when we take into account the typology of sectors, the demand for the high skilled in low skill intensive sectors in ‘New’ EU members is boosted by the increase of the average labour cost in ‘Old’ EU members. Thus in low skill intensive sectors, the high skilled in ‘New’ member countries can substitute for employment in EU‐15 countries.