Although the four countries considered in this study are the most developed transition countries in Europe, their average wages are only a fraction of West European levels. While the labor costs would theoretically give the Central and Eastern European (CEEC) countries an advantage, capital shortages and the lack of skills required for a market economy prevent its use. The report was prepared under the auspices of the World Bank by Peter Havlik, Deputy Director of the Vienna Institute for International Economic Studies (WIIW). This report reviews wage and labor productivity developments and examines the evolution of export competitiveness. It also summarizes the main findings from the ongoing research by WIIW on the impact of foreign direct investment on restructuring and provides some policy recommendations.