EUROPA - Introduction to the Mechanical and Electrical Engineering ...

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currencies of the new Member States depreciated at an average rate of 1.95% per year.
Both effects together strengthened the price competitiveness of the engineering industries
at a yearly rate of 2.21% as compared to EU-15 for the total period from 1995 to
2004.
The price competitiveness in the new Member States developed quite different over the
period under review. During the early stage of the transition a high double digit growth
rate of labour productivity more than compensated wage increases. In the more recent
years productivity gains slowed down and were no longer sufficient to compensate
wage increases which grew at the same pace as during preceding years. The unit-labour
costs started growing. Moreover macro-economic stabilization made some progress.
Measures were taken to prepare for the accession to the euro zone. A stricter fiscal and
monetary policy led to confidence in the New Member States’ currencies. As a consequence
they appreciated against the Euro. Price competitiveness shrunk – induced by
both of these effects.
The worsening of the advantage in price competitiveness against the EU-15 must not be
interpreted as a general loss of the new Member States attractiveness as a location for
production. The still high wage differentials as compared to the old Member States will
incite further relocation of capacities. But this development underscores that there is a
loss of competitiveness as a location for labour intensive, less qualified production.
These workplaces have helped to keep unemployment on an endurable albeit high level
during the transition period. It is not very likely that a relocation of production from
EU-15 to the new Member States accompanied by further eastward relocation will result
in a growth of employment in the engineering sectors in the enlarged European Union.
A remarkable wage hike happened in domestic appliances and in electrical engineering.
Both of these sectors were responsible for the worsening of the price competitiveness of
total engineering. In mechanical engineering the development was quite different, productivity
gains were somewhat lower, but wages grew “only” at a yearly rate of 10%.
Unit-labour costs fell in contrast to the development of both of the other sectors.
1.6 Conclusions
The engineering sectors of the new Member States have been growing strongly over the
period under investigation. They gained shares in international trade, as compared to the
EU-15, Japan and the USA. In electrical engineering and domestic appliances exports