For several years, centrope has beenone of the most dynamic, transnationaleconomic areas of the European Union.Located at the interface between thebusiness centres of the “old EU” and thegrowth areas of Eastern and South-EasternEurope, centrope has the potential ofdeveloping into a significant CentralEuropean hub. This is illustrated both bymajor investments made by the automo-tive industry in recent years as well asthe high number of international com-panies that set up their European head-quarters in centrope.

Economic-policy actors now face themain challenge of using the current “win-dow of opportunity” for exploiting theexisting potentials. Positioning centropeas an internationally competitive busi-ness location for high-quality productsand services requires joint cross-borderefforts and increasingly harmonisedlabour-market and economic policies.

The present centrope Business & LabourReport provides a valuable basis forcross-border policy-making. The report

is conceived as an annual publicationso that the relevant regional businessagencies, enterprises, chambers andfederations as well as policy-makersand administrations can monitor theeconomic development in the trans-national economic area of centropeand are able to elaborate concertedlabour-market and employment-policyactions.

The present report constitutes a firstprototype that can be expanded toinclude additional features in the nextfew years. It was prepared in co-opera-tion between research institutes inAustria, the Czech Republic, Hungaryand Slovakia so that the know-howon economic development and dataavailable in and on the region is usedin an optimum way and opportunitiesfor harmonising data are jointlyexploited.

centrope, November 2007

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The centrope Business & LabourReport – a tool for cross-borderpolicy making

Preface

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The comparative advantage of centrope lies in its

position between the Western European centres and

the rapidly growing Eastern European region

The centrope region is one of the most important transnationaleconomic areas at the former eastern borders of the EuropeanUnion. centrope is a region of enormous economic potential. Itis located at the intersection of four countries, comprises twocapital cities (Vienna and Bratislava) as well as several furthermajor cities (Brno, Győr) and covers some of the most dynamicregions in the Central and Eastern European countries as well assome of the most prosperous regions within the EU (Vienna).Situated at the crossroads of important European transportcorridors and disposing of efficient international airports,centrope offers excellent accessibility and short distances to allthe key markets in Europe. Given its big and expanding markettogether with its favourable location and high accessibility,centrope is one of the key European areas for both large andsmall to medium-scale investments. The high number of insti-tutions of research and development and higher education incentrope add to this, and are a key factor for attracting highlyinnovative industries and services, which in turn are the basisfor a sustained period of economic growth and prosperity.

Despite these favourable conditions, centrope neither lies inthe economic nor the geographic centre of Europe. Rather, itis a region at the interface between the European economiccentres, which are located to the west of the region, and theless developed but rapidly growing centres of Eastern Europe.Thus, centrope is a “transitional” region, in which good accessi-bility from the economic centres of Western Europe and fromthe rapidly growing Eastern European countries give rise tocomparative advantages. As recently evidenced by a numberof spectacular foreign direct investments, these in general liein a strong industrial base especially in ancillary industries (suchas automotive components), a strong orientation to mediumskill and niche products and, in particular in the eastern part ofcentrope, a rapid technological catch-up process and low wagecosts.

Economic integration across borders rapidly increases

but still lags behind intra-national levels

Similarly, the centrope region is still less integrated than regionswithin one country. Economic ties and cross-border activitieshave significantly increased within centrope over the last oneand a half decades. According to recent surveys, around aquarter of the firms located in the region have cross-borderrelationships (in the form of ownership, delivery relationshipsand/or other forms of co-operation). Yet, cross-border exchange,in particular in the labour market, still remains limited due toexisting institutional impediments and bottlenecks in infra-structure.

However, these ties, too, can be expected to further strengthenin the near future as internal and external accessibility will beimproved by the measures planned for closing existing gapsand eliminating bottlenecks in the cross-border transport net-works as well as plans to step up the modernisation of theexisting infrastructure. Furthermore, institutional and physicalbarriers that still hamper the full exploitation of the economicpotential of centrope, e.g. in the field of labour mobility, arelikely to be removed within the next years.

One consequence of this increasing economic integration ofthe centrope region is the need for the parallel evolution ofcross-border policy-making. As a result, economic policy co-operation is a must in order to facilitate economic integration.In the end, the successful development of centrope cruciallydepends on integrated policies that share similar goals and, as aconsequence, also result in concerted decisions.

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centrope – a transitional regionon the move

Introduction

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centrope is characterised by strong centres located

at the border of two territories with major economic

differences

Despite the many common features highlighted above, centropeis by no means a homogenous region today. This comes as nosurprise. Covering a territory of more than 44,000 square kilo-metres and a population of almost 6.5million inhabitants, the region is simi-lar in size to many medium-sized orsmaller countries of the EU. Thus, sub-stantial internal disparities exist.

These disparities can be structuredalong two dimensions. First, there aresignificant differences between theregions of centrope located in differentcountries and second there are sub-stantial differences between the cities,their environs and more rural areas.

Although in many respects the eco-nomic development of the region isclosely linked to the economies of the"twin capitals" of Vienna and Bratislava and the large agglomer-ations of Brno and Győr, centrope is not a typical centralregion in the European context. Its settlement structure, onaverage, is not dominated by large cities. Rather – as in mostparts of Central Europe – medium-sized towns prevail. At thesame time, centrope is not a peripheral region either. Onlysome parts of centrope (such as Southern Burgenland, theWaldviertel in Lower Austria and parts of South Moravia andVas County) may be considered rural peripheries. Thus, cen-trope can be best described as a region characterised by strongcentres located at the intersection of two territories of the EUwith major economic differences.

Due to the legacies of the communist regimes, the main divid-ing line within the region was and still is the border betweenthe new member states and Austria: While in the Austrianparts, per capita GDP approaches or exceeds the EU average,all the centrope regions of the new member states – except for

the Bratislava region – currently qualify for EU funding under“Objective 1” to support the catch-up process of structurallyweak regions; their GDP per capita is much lower than theEU-25 average. In the richest region of centrope (Vienna),GDPper capita at purchasing power parity was 172.3% of theEU-25 average, while it only reached 55.8% of the average in thepoorest region (Trnava).

The centrope regions in the new member states

have embarked on a stable catch-up process with

the old member states

However, not all the differences in centrope follow purelynational lines. For instance, the capital city of Bratislava boastsa per capita GDP that is comparable to the Austrian regionsand lies above the EU average; together with its “twin city”Vienna, Bratislava is one of the economic strongholds ofcentrope. Burgenland, on the other hand, has been an “Objec-tive 1” region until recently; its GDP per capita is not onlybelow the EU average but also below the centrope average.

While regions located in the new member states may beconsidered to be generally “poorer” than the Austrian regions,

GDP PER CAPITA 2004Purchasing power parities

Source: Eurostat.

3

The Economic Situationof the centrope Region

A dynamic but inhomogeneousgrowth region

4

their dynamism is also significantly higher. Since 1995, GDPgrowth rates in the Czach, Hungarian and Slovak regions ofcentrope ranged between 7% and 12% and clearly outper-formed the Austrian regions (with growth rates of 3% to 4%).The rapid catch-up process of the Central and Eastern Euro-pean countries, thus, makes the whole centrope region moredynamic than the European average.

Sectoral structure differs substantially between the

eastern and western parts of centrope, but structural

change is particularly dynamic in the eastern part

Similarly, the structure of the labour force and infrastructureendowments differ significantly across regions. Aside fromnational differences, disparities in education systems are alsoclosely associated with urbanisation: In general, centrope ischaracterised by a highly qualified workforce that has itsstrongholds in the secondary and upper secondary educationlevels. In particular in the Czech and Slovak regions, around80% of the employed persons have completed secondary edu-cation. The share of population with tertiary education is, how-ever, below the European average in all the regions except thecapital cities of Vienna and Bratislava where around a quarterof the workforce has completed tertiary education. High

percentages of the workforce having only primary educationcan only be found in Western Transdanubia. Infrastructureendowments, accessibility and innovation indicators tend tofollow these patterns. In particular, indicators of research& development activity (such as R&D expenditure, patents per1000 inhabitants) and infrastructure quality are clearly abovethe EU average for the large agglomerations (in particularVienna and Bratislava), but not for the more peripheral region.

Finally, the employment structure differs between the Austrianregions and the Czech, Hungarian and Slovak regions. In thecentrope regions of the new member states, a significantlyhigher share of the employees (29.5% vs. 16.4% in the Austrianregions) works in manufacturing and a smaller share in theservice sector (in particular, employment in public services isaround 5 percentage points lower in the regions of the newmember states than in the Austrian part of centrope.)

As with aggregate GDP, however, the regions of the new mem-ber states are also more dynamic in terms of structural change.For instance, indicators of structural change at a high level ofsectoral aggregation suggest that the Czech, Hungarian andSlovak regions of centrope are also converging in structure tothe Austrian regions and have experienced a structural changethat was almost twice as strong as in the Austrian regions.

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GDP GROWTH 1995/2004Average annual change in %

Source: Eurostat, WIFI calculations.

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CENTROPE PARTNERS IN FOCUS:> AUSTRIA <

The Austrian part of centrope is com-posed of the capital city of Vienna,Lower Austria and Burgenland.

Vienna is a typical urban region with astrong service sector (around 85% ofGDP), and a high GDP per capita(179.9% of the EU average at purcha-sing power parity, 5th rank among EUNUTS II regions). Among the Austrianregions, Vienna is unique due to its highproductivity growth. This and substantialstructural changes have led to lowemployment growth and high unemploy-ment in the last decade. As a result,Vienna is the Austrian province with thehighest unemployment rate.

Lower Austria is the biggest Austrianprovince and, because of its size, it isalso relatively heterogeneous. In gene-ral, the province is marked by the thirdhighest share of manufacturing in GDPin Austria (27.9%). Lower Austria recor-

ded GDP growth rates that were slightlyabove average over the last decade and,in recent years, strongly profited fromexport-led growth. The unemploymentrate of this region is in the middle rangesof the Austrian provinces.

Burgenland is the poorest of the Austrianprovinces. In particular, the south is cha-racterised by rural-peripheral regions. Inthe last decade, however, the combinedeffects of EU funds and improved acces-sibility due to the fall of the iron curtainresulted in the highest GDP and secondhighest employment growth rates inAustria. Nevertheless, the high unem-ployment rate which is driven by highseasonality and dynamic labour supplyremains one of the unresolved problemsin the region.

In 2006, the regional growth pattern inAustria was mainly determined by regio-nal specialisation. The export-orientedmanufacturing sector dominated regio-nal developments and its dynamism alsospilled over to other sectors. This re-

sulted in a clear West-East differential inregional growth so that the Austrian cen-trope regions exhibited below-averagegrowth. Among the Austrian provinces,Burgenland and Vienna – which havelow manufacturing shares in gross valueadded – had the lowest GDP growth.Only Lower Austria profited from itsstrong manufacturing base and had anabove-average growth rate.

Employment growth followed thesegeneral lines: as with GDP growth,the western non-centrope provinces ofAustria and the provinces with a strongindustrial base, expanded employmentmore rapidly than the Austrian centroperegions. High employment growth alsoled to a relatively strong reduction inunemployment rates in 2006. Onaccount of divergent increases in laboursupply, reduction in unemployment was,however, regionally much more evenlydistributed and ranged between 0.5 p.p.and 0.4 p.p. in the Austrian centroperegions.

CENTROPE PARTNERS IN FOCUS:> CZECH REPUBLIC <

The Czech part of centrope, SouthMoravia, is economically dominated bythe Brno agglomeration. Being the secondlargest city, it is one of the main centresof economic activity in the Czech Repub-lic. Due to Brno’s relatively high eco-nomic potential as well as due to itsfunction as a centre for higher educationand for research and development, it hasa significant influence on the generalsectoral pattern of activity in SouthMoravia. Thus, despite its strong indus-trial base, South Moravia has – in Czechterms – a relatively high share of ser-vices (and a relatively low share of agri-culture) in output and employment.Additionally, Brno is also one of the mainfactors contributing to the relatively high

amount of foreign direct investmentSouth Moravia received over the lastdecade.

In South Moravia, which belonged to thefastest growing regions of the CzechRepublic throughout transition as well asin recent years, the intensity of changesin employment structure was less pro-nounced than in the rest of the CzechRepublic. Thanks to higher employmentgrowth in the tertiary sector, the employ-ment decline was essentially lower thanelsewhere. At the same time, the struc-ture of employment has continuallyadvanced towards the pattern in West-ern European countries. The mostimportant sector in terms of its share intotal employment is the manufacturingindustry, which accounts for more than a

quarter of all employed persons in SouthMoravia, followed by business services,wholesale trade and repair as well as theconstruction industry.

From 2005 to 2006, employment in-creased especially in most manufactur-ing sectors. The highest employmentgrowth rates occurred in the productionof transport facilities, of computers andbusiness machines and of televisionsets. Other industries recording signifi-cant employment growth are businessservices and construction. By contrast,the number of employees in agricultureand forestry decreased in 2006. Still,overall employment growth was positivein South Moravia. Accordingly, theunemployment rate decreased from 10.2to 8.8 percent.

The Labour Market Situationin the centrope Region

Substantial common problems and some specific

national aspects in centrope’s labour market

Considering the labour market in a European context, centropeis a region with relatively low unemployment rates and a labourmarket participation that is equal to or slightly higher than theEU average. Labour market disparities within the region seemto be less influenced by national borders than other indicatorsof economic development. Only one region in centrope(Trnava) was characterised by two-digit unemployment ratesaccording to EU Regio data in 2005. Vienna and South Moraviahad unemployment rates of 9.1% and 8.1%, those of all otherregions were around 5% to 6% – as compared to 9% in theEuropean average.

Furthermore, employment rates exceeded the European aver-age of 63.7% in all but the Hungarian centrope regions andTrnava. The highest values were observed in Lower Austria(69.9%), Bratislava (69.6%) and Burgenland (68.1%). Vienna andSouth Moravia were very close to the European average.

Thus, the majority of centrope regions are – relative to the EUaverage – privileged in terms of the labour market situation.

Yet, some labour market problems persist. These may besummarised as follows:

• Due to a history of early retirements and the downsizing ofthe labour force in the course of industrial restructuring,employment rates of the population aged 55 and above arelow relative to the EU level in four regions of centrope. InBratislava and South Moravia, the rate is above the Europeanaverage of 42.5% and, in the Hungarian centrope regions, itremains only slightly below this value. In all the Austrianregions where early retirement was particularly popular untilthe recent changes in the pension system, employment ratesof the elderly are around 30%; they are even lower in Trnava(28.8% – for the corresponding NUTS II region of WestSlovakia).

• Aside from low employment rates of the elderly, youthunemployment rates are above the EU average in Vienna,South Moravia and Trnava, but below this average for thecentrope region as a whole. Youth unemployment hasrecently also been on the decline in most Austrian provinces.

• Given the low overall unemployment rates, longterm unem-ployment reaches a relatively high level in some of the Czech,

Hungarian and Slovak regions of centrope,but it is low in the Austrian part of centrope.In 2005, Bratislava and the Hungariancentrope regions were below the Europeanaverage, while South Moravia and the Slovakcentrope region around Trnava stayed above.This indicates a severe mismatch betweenthe qualifications of the unemployed andthe requirements of prospective employers,as would be expected in economies experi-encing structural changes at the speedobserved in the centrope region.

• Finally, a lack of skilled labour is reportedvery frequently across the region. Thisapplies both to the automotive industry(especially in the Czech Republic andSlovakia) and to many segments of thehigh-skill service sector, such as health-care

Low unemployment and a needfor highly skilled labour

UNEMPLOYMENT RATE 2005Source: Eurostat.

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professionals, architects, civil engineers and IT experts. Thesedevelop ments may be partly attributed to the large inflowof FDI, which spurs the demand for skilled labour.

In summary, based on aggregate indicators, the labour marketsituation of the centrope region can be described as relativelyfavourable when compared to the EU average. Furthermore –and perhaps more surprisingly –, labour market patterns in thecentrope regions are more similar and less strongly influencedby cross-country differences than often perceived. Whenclustering all the regions of EU member states according tothe above-mentioned labour market indicators, all centroperegions belong to what may be considered a typical CentralEuropean labour market group encompassing – aside fromcentrope – southern Germany, northern Italy and the remain-ing provinces of Austria.

A high share of centrope’s workforce has

a medium education level

An analysis of labour market developments with respect to dif-ferent skill types, however, shows that centrope has a supplystructure that differs from the one of the most developedEU countries (EU-15): centrope has a significantly smallerproportion of people with low levels of education as well

as a smaller proportion of people with the highest levels ofeducation.

Despite having a small number of people with the lowest levelsof education in their labour force, the position of this groupin the labour market of the new member states’ regions ofcentrope is much worse compared to the same group ofworkers in the EU-15 labour markets (a gap of 20 to over 30 p.p.in employment and unemployment rates). This is due to thecombination of heavy industrial restructuring in the lastdecade, which has led to a massive shift of labour demand tooccupations requiring higher qualifications, and a narrowlydefined professional education system, which contributes tolow flexibility of labour markets.

On the other hand, the employment rates of the medium andhighly educated do not differ much between the new memberstates and the EU-15. At the high-skill end of the labour mar-ket, an interesting phenomenon can be seen. In this segmentof the labour market, there are clear signs that the situation ismuch tighter in centrope than in the EU-15: in view of highand rising employment and very low unemployment rates, thedemand for highly skilled labour currently exceeds the supply.The situation is even tighter where the 25- to 35-year age groupis concerned.

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SKILL STRUCTURE OF THE WORKFORCE IN centrope 2005Source: Eurostat.

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Current EconomicDevelopment andOutlook

During the last few years, the new EU member states amongthe centrope countries experienced strong economic growthin terms of income, industrial output and exports and recentlyalso employment. This also applies to the year 2006. Slovakiarecorded its most rapid economic expansion since transitionbegan (+8.3%), while the Czech Republic maintained robustgrowth. Only Hungary was an outlier, as GDP growth was lessthan 4% as a consequence of the austerity package introducedin mid-2006. Austria, though growing at a slower pace thanthese countries, still recorded a GDP growth rate of more than3% – for the first time since six years. In total, the centropecountries grew faster than the countries of the “old” EU (i.e.EU-15) in 2006 in terms of real GDP, thus prolonging a periodof above-average growth that started in 2004 for Austria andalready 2001 for the other three countries.

High growth in the centrope countries in 2006 was closelylinked to a dramatic increase in industrial production. A con-siderable acceleration of industrial growth occurred in Slovakia(+6.6 p.p. from 3.3% to 9.9%), where the foreign owned manu-facturing cluster shifted into top gear in terms of exports.In the Czech Republic and Hungary, industrial output grewapproximately at the same rate as in Slovakia. The accelerationof industrial output growth was also impressive in Austria(+4.4 p.p. – around twice as high as in the euro area or theEU-27 on aggregate).

The labour market has improved in most centrope

countries

Labour market conditions also improved in most centropecountries in 2006. Following the EU-wide trend, unemploy-ment dropped significantly in Slovakia (from 16.3% to 13.4%)and moderately in the Czech Republic (from 7.9% to 7.1%).Austria’s unemployment rate, though already quite low (5.2%),fell to 4.7%. Only Hungary recorded a slight increase in theunemployment rate – from 7.2% in 2005 to 7.5% in 2006.

This development is largely attributable to rising employmentbased on strong GDP growth. Despite these general improve-ments, some structural aspects of unemployment remainedunchanged or even deteriorated. Regional disparities in thenew member states are still widening and interregional mobilityis low. Thus, in several countries, labour shortages in someregions or sectors co-exist with high unemployment in otherregions. In the new member states, labour shortages occurredmuch earlier than might have been expected after years ofalmost jobless growth and high unemployment. High unem-ployment had persisted for a long period of time, resulting in alarge proportion of long-term unemployed who are nearlyunemployable as their skills have eroded, they lack any motiva-tion to work and their level of education is low.

Recent developments document thegood growth prospects of the region

GROSS VALUE ADDED GROWTH IN INDUSTRY 1995-2004 BY centrope REGIONSSource: Eurostat.

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The increasing demand for labour also puts pressure on wages.Available data point to an increase in the wage bill in industryin Slovakia and the Czech Republic where only recently workerswent on strike for higher pay at the Skoda car plant.

Favourable macroeconomic forecasts for most

centrope countries

Though GDP growth rates will be somewhat lower in 2008,especially for Hungary, the centrope countries will grow at arespectable pace – compared to the EU-27. Exports from thecentrope countries are expected to rise further, given thefavourable international environment, the growing importdemand of the region’s main trading partners as well as thecontinuing competitiveness of the three new member stateswithin centrope. Limitations for economic growth in thecentrope countries potentially come from the increasinglytight labour markets where the lack of highly skilled labourmight dampen the future development of high value addedactivities.

Still, the outlook for centrope is optimistic and even more sowhen the substantial funding from the European cohesion

policy is taken into account. From 2007 onwards, the countriesin Central and Eastern Europe will receive on a net basis around+2.5 to +4% of their GDP. The importance of these funds isillustrated by the fact that under the European RecoveryPrograms (Marshall Plan), Western Europe received financialassistance from the USA from 1948 to 1952 that on averagereached 2.1% of the GDP of the respective countries per year.The optimistic outlook for the centrope countries is goodnews for the individual centrope regions within these coun-tries. Given the high correlation between country growth andthe economic development of its regions, the regions can beexpected to enjoy economic prosperity just as much as thecountries as a whole. This is especially true for the centroperegions. With a few exceptions, the centrope regions belong tothe most prosperous and most dynamic regions within theircountries. Hence, given the past development of these regionsas well as their economic structure, it is likely that the centroperegions will not only benefit from the good macroeconomicdevelopment in their countries, but will also be major contrib-utors to economic growth in the centrope countries.

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GDP GROWTH AND FORECASTS OF centrope COUNTRIESSource: WIIW.

2002 2003 2004 2005 2006 2007 2008

Forecast Forecast

Austria 0.9 1.2 2.3 2.0 3.3 3.4 2.4

Czech Republic 1.9 3.6 4.6 6.5 6.4 5.0 5.2

Hungary 4.4 4.2 4.8 4.1 3.9 2.7 3.1

Slovak Republic 4.1 4.2 5.4 6.0 8.3 8.5 8.0

centrope 2.8 3.3 4.3 4.6 5.2 4.3 4.3

EU-25 1.2 1.3 2.4 1.8 3.0 2.8 2.6

EU-15 1.1 1.2 2.3 1.6 2.8 2.7 2.5

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CENTROPE PARTNERS IN FOCUS: > HUNGARY <

The Hungarian part of centrope comprises the counties ofGyőr-Moson-Sopron and Vas both located in the NUTS IIregion of Western Transdanubia. This region belonged to theten fastest growing NUTS II regions in the EU in the lastdecade (only the Baltic countries, Ireland and two other Hun-garian regions – Central Hungary and Central Transdanubia –had higher growth rates). The unemployment rate in the regionwas at 5.9% according to the Labour Force Survey in 2005 andthus the second lowest in Hungary.

The Hungarian centrope regions greatly benefited from eco-nomic transition by attracting international investors; however,the internationalisation process and the economic develop-ment it induced differs significantly within the region: Incomelevels are highest in the northernmost region of Győr-Moson-Sopron and decrease as one moves southward, with Vas stillgrowing significantly above the national average and theregion of Zala (which does not belong to centrope) laggingbehind.

This uneven intraregional development is due to differences inindustrialisation (Vas is much more burdened with a high shareof labour-intensive industrial employment than Győr-Moson-Sopron) but also to different responses to internationalisation.

Győr-Moson-Sopron has attracted more international capitaland the firms coming into the region fulfil on average more"headquarter functions" than international firms in Vas. In addi-tion to production-oriented activities, research and develop-ment is increasingly carried out at this Hungarian location aswell. Consequently, the firms' competitiveness relies less onlow labour cost which reduces their vulnerability to increasesin Hungarian wages and salaries. Moreover, while companiesin Vas seem to have little business links with local firms, region-al supplier networks and clusters are formed in Győr-Moson-Sopron. The higher level of regional embeddedness ofinternational firms in that region provides an important impulseto the regional economy.

Despite its privileged role in previous years, a combination offactors (such as the effects of budgetary saving and relocationof some companies) resulted in a decline of total real grossvalue added (GVA) by -1.3% in the Hungarian centrope re-gions in 2005, with Vas experiencing a reduction of real GVAof -2.8% and Győr-Moson-Sopron performing much better butalso below the national average with -0.4%. Labour marketdevelopment of the Hungarian centrope regions was, how-ever, still better than in the Hungarian average in 2006.Employment grew by +0.5% (+0.1% nation-wide) and theunemployment rate increased by only +0.1 percentage points(+0.2 percentage points nation-wide).

CENTROPE PARTNERS IN FOCUS: > SLOVAKIA <

Both the Bratislava and Trnava regions, which form the Slovakpart of centrope, are the economically most prosperous re-gions in Slovakia. Yet, they are not directly comparable. TheBratislava region has enormous locational advantages andexcellent starting conditions as a capital city. Together withdomestic investments, the inflow of foreign direct investmentsis one of the relevant driving forces in its robust economicdevelopment. Trnava, by contrast, draws its economic advan-tages from its proximity to Bratislava and to the Czech Republicwith their developed transport infrastructures.

The leading role of both regions, but also the differencesacross the two regions are reflected in the labour market situa-tion. In the Bratislava region, the economic activity rate is thehighest in the Slovak Republic. The economic activity rate ofthe Trnava region is above the Slovak average, but still lagsbehind the rate of Bratislava. This is mainly due to the south-ern part of Trnava with large shares of agriculture and thenorth-west districts characterised by a mountainous relief andan underdeveloped local infrastructure. The lagging districtsalso record a significant share of long-term unemployment.The unemployment rate of the Bratislava region is the lowest inthe Slovak Republic. It is close to the “natural unemploymentrate” (tantamount to full employment). The unemployment rate

of the Trnava region is also below the Slovak average. Withinthe region, a pattern can be observed that is similar to the onefor the economic activity rate.

As far as changes in the economic development are con-cerned, both Slovak centrope regions are the leading regionsin Slovakia. Looking at the development from 2001 to 2005,labour productivity rose by 42% in the Slovak Republic. In theSlovak centrope regions, the increase was around 55%(Bratislava) and 54% (Trnava).

High economic growth also led to increasing employment ratesin the Slovak centrope regions. Overall, Slovak employmentgrew by 2.8% between 2001 and 2005. The Slovak centroperegions performed much better than the Slovak average in thisrespect: Bratislava recorded an employment rise by 7% andTrnava an increase of 5.7%. In the Bratislava region, most jobswere created in real estate activities, public administration andfinancial intermediation. The largest decline in employmentwas in education as well as agriculture, hunting and forestry. InTrnava, high employment growth was recorded in manufactur-ing, construction, public administration, hotels and restaurants,and real estate activities. The sharpest decline was observedin agriculture, wholesale and retail sale and in education.

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In summary, centrope is a region in which the rapid economicintegration can be expected to continue in the next years. Thisrequires the parallel evolution of cross-border policy-making.

>> Strengthening comparative advantages

In this context, one of the central objectives of economic policyis and will be to secure and improve the region’s attractivenessfor investments. Given the comparative advantages of centropeas a location for ancillary industries, developing and deepeningexisting cross-border supply chains should be one of the priori-ties for policy-makers. In the field of SME policy, the key issue inthis respect is to provide highly visible information on potentialpartners for cross-border co-operation.

>> Fostering cross-border innovation systems

In the long term, however, the competitiveness of the centroperegion – like the competitiveness of all other regions in devel-oped countries – will strongly depend on its capability to com-pete in international markets for technologically advancedproducts. Thus, activities aiming to maximise cross-borderknowledge spill-overs and to establish an efficient cross-borderinnovation system will be central for the future development ofthe region. This suggests that high priority should be given toinitiatives fostering the mobility of researchers and universitystudents within the region as well as initiatives promoting cross-border co-operation in the field of research and development inthe future.

Cross-border policy-makingrequired

Policy Recommendations©

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>> Investing in public infrastructure

Developing cross-border co-operationwill, however, also require investments ininfrastructure. While the insufficient stateof road and, more generally, transportinfrastructure of centrope has been oftencriticised, recent investment plans sug-gest that policy is at least partly address-ing the bottlenecks that still exist.However, other areas of public infrastruc-ture development should also be increas-ingly considered from a cross-borderperspective. Co-operation activities in theschool system are a good example of thereturns that can be gained from such ini-tiatives. Co-operation should, neverthe-less, become more and more common inall fields of public service provision rang-ing from municipal services to healthcare.

>> Developing cross-border actor

networks

Closely related thereto, substantial effortsshould be made to develop decentralisedcross-border actor networks and tobring these networks to deliver servicesand policies that result in a noticeableimprovement of the living conditions forthe population of centrope. In someareas (e.g. labour market policy), suchnetworks already exist. Here, the key tofurther development will be to demon-strate the achievements also to the widerpublic. In other areas (such as municipaland public services), by contrast, suchnetworks will have to be more forcefullydeveloped in order to better identifyareas of co-operation.

>> Co-ordinating labour market

policies

Finally, in the field of labour market pol-icy, future activities should increasinglyfocus on the exchange of best practicesfor active labour market policy and fortackling the shortage of skilled labourthat is now felt almost everywhere incentrope. Establishing efficient channelsfor cross-border placements of workerswill be another important issue in cross-border labour market management.Much can be expected from such meas-ures because many labour market prob-lems are similar in centrope and thedemand for the cross-border placementof workers is likely to increase whencurrent institutional obstacles to cross-border labour mobility will be removed.

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Scientific Partners:

The centrope Business and Labour Report 2007was elaborated by a consortium of scientific institutesfrom all four centrope partner countries:• Austrian Institute of Economic Research (WIFO):

http://www.wifo.ac.at/Oliver Fritz, Peter Huber, Gerhard Palme

• Institute for Structural Policy (IREAS):http://www.ireas.cz/Martin Pelucha, Viktor Keton

• Institute of Economic Research at the Slovak Academyof Sciences:http://www.ekonom.sav.sk/Karol Frank

• Vienna Institute for International Economic Studies (WIIW):http://www.wiiw.ac.at/Roman Römisch

• West Hungarian Research Institute (WHRI):http://www.rkk.hu/nyuti/Mihaly Lados

Contact:

centrope Project Secretariatc/o Europaforum Wien – Centre for Urban Dialogueand European PolicyRahlgasse 3/2, 1060 Vienna, AustriaTel. +43-1-5858510-0Fax. +43-1-5858510-30office@centrope.infowww.centrope.info

Imprint:

Published by:the Austrian Provinces of Vienna, Lower Austria and Burgenland(promoters of the centrope 2006 plus project)Responsibility for the contents:Austrian Institute of Economic Reasearch (WIFO),Vienna Institute for International Economic Studies (WIIW)Edited by:Johannes Lutter (Europaforum Wien)Translation & proof-reading:Regina Thaller – Euro Text Services, ViennaLayout and illustrations:clara monti graphic, ViennaPrinted by:Simply More Printing, Vienna

Supported under INTERREG III A by the European Union.

PARTNER REGIONS• Bratislava• Burgenland• Gyor-Moson-Sopron• Lower Austria• South Moravia• Trnava• Vas• Vienna

PARTNER CITIES• Bratislava• Brno• Eisenstadt• Gyor• Sopron• St. Pölten• Szombathely• Trnava• Vienna

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