Fact and fiction: wage levels and the (re)location of production

Abstract

Argues that the influence of developments in production technology and process innovation on the selection of the location of production has markedly increased and, as a consequence of this, the role of wage levels has diminished, in spite of the fact that many of the top managers of European enterprises stubbornly continue to maintain that the opposite is true. On the one hand challenges the statement that wage levels in The Netherlands are too high compared with other European countries and on the other hand (and more important) argues that the role of wage levels has diminished in the discussion of how to increase European employment. To illustrate the shift in industrial strategy, the actual (re)location behaviour of a large Dutch electronics concern, namely Philips Electronics, can be given. By examining this corporation′s behaviour side‐by‐side with the developments in production technology, demonstrates that, while wage costs played a significant role in determining the location policy in large‐scale enterprises in the 1960s and 1970s, the importance of this factor since the 1980s has diminished. Casts a different light on the constantly reiterated admonitions by European managers (and economists) that high wage levels in Europe will lead to the emigration of enterprises to low‐wage countries with disastrous consequences for the European levels of (un)employment.