Skills and ethnics wage inequalities within the global value chain: an evidence from Malaysia

Abstract

ABSTRACT International fragmentation phenomenon has dramatically changed the pattern of international trade. Instead of exchange of finished goods, the so-called global value chain (GVC) involves multi-stages production process across geographical borders, probing for its impact of gain from trade. Using recently developed multi-regional input–output (MRIO) tables, this paper examines and compares wage inequality effects of trading with Transpacific Partnership Agreement (TPPA), BRICS and ASEAN economies in Malaysia. A combination of MRIO model and inequality accounting framework has been exploited to quantify skills (i.e. low, medium, high) and ethnics wage inequality. The results show that Malaysia could have significantly experienced high wage inequality at different skill categories and across ethnic groups when trade with TPPA, suggesting the mega trade deal potentially risks existing efforts for equitable distribution. In particular, Chinese ethnics, who are commonly employed in high productive sectors, benefit the most compared to Malays and Indians. In contrast, exports to the BRICS and ASEAN countries have minimal effects on wage inequality, where regional trade could be more effective in reducing inequalities.