Wage effects of global value chains participation and position: An industry-level analysis1

Abstract

We examine how participation and positioning in global value chains (GVC) affect wages. We also examine whether this relationship is conditioned by a country’s development level and labor market regulation. The results show that participation and upstream specialization in GVCs are associated with higher wages but only in developed countries. In developing countries, while GVC participation is associated with higher wages, upstream specialization exerts downward pressure on wages. For analysis focusing on the role of labor market regulation, we find that GVC participation only exerts a positive effect on wages under stringent labor market regulation. Under flexible labor market conditions, it exerts downward pressure on wages but allows for the effective reallocation of GVC workers into knowledge-intensive and high value added upstream activities in the value chain that are more productive and wage rewarding. Additional analysis on the effects of GVCs along the wage distribution show that participation and upstream specialization in GVCs are associated with higher wages across all wage segments in developed countries. In developing countries, GVC participation only benefits higher wage earners and make low-wage earners worse-off. Even when upstream specialization is associated with lower wages across all wage segments, low wage earners are disproportionately affected.