Abstract
Using rich individual level data on workers from 28 European countries, this study provides the first so extensive cross-country assessment of wage response to global production links within GVC in the period 2005–2014. Unlike the other studies, the authors (i) address the importance of backward linkages in globally integrated production structures (capturing imports of goods and services needed in any stage of the production of the final product); (ii) measure occupational task profile of workers with country-specific indices of routinisation; (iii) compare the impact of global production links on wages between workers from Western, Central-Eastern and Southern Europe; employed in manufacturing and non-manufacturing sectors; (iv) account for direct and indirect dependence on GVC imports from developing and high income countries. The study takes into account the potential endogeneity issues. The results suggest that global import intensity of production exhibits negative pressure on wages in Europe. This effect concerns mainly workers from Western Europe employed in manufacturing and is driven by production links with non-high income countries but our counterfactual estimates suggest that the effect is economically small.
Highlights
The labour market effects of production relocation are still being debated
Instead we employ the latest release of the WIOD input–output data2 and methodology proposed by Timmer et al (2016), proxying fragmentation by a newly devised index of global import intensity of production (GII), which counts imports of goods and services required in any stage of production, including trade with third countries
The Hansen J test of overidentifying restrictions refers to its p-value when inputs employed along the production chain come from the developing countries and/or Rest of the world (RoW), than when GII is measured with global value chains (GVCs) imports from high income countries
Summary
The labour market effects of production relocation are still being debated. Offshoring, understood as ‘the process of changing the geographic assignment of the mix of tasks needed to produce a single final good or service’ (Hummels et al 2018: 983) has traditionally been seen as a threat to domestic workers (job losses, declining wages, heightened inequality). This paper uses rich individual-level data on workers in 28 European countries in the period from 2005 to 2014 to produce a multidimensional cross-country evaluation of the factors that determine wages in labour markets characterised by strong links to GVCs and task-related specificity of jobs. Our central question is : are wages in Europe affected by globally measured dependence on foreign inputs, including direct and indirect exposure, given all the other dimensions of the wage determination process?10 To answer, we construct a rich dataset: individual-level information on wages, occupational task profiles, personal and job characteristics on 1.3 million workers in 28 European countries over the period 2005–2014. See Ebenstein et al (2014) for a joint micro-level analysis of the impact of production fragmentation on wages and employment shifts in the U.S
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