Will falling domestic labor compensation share really be improved when global trade slowdown?

Abstract

The participation of Global Value Chains (GVCs) in the world’s major economies has changed from rising to falling since 2010. Based on GVCs income, SDA method and multiple panel regression, this paper explores the cross-cycle effect, mechanism and persistence paths of GVCs participation on domestic labor compensation share in 51 economies from 2000 to 2018. The paper concludes that the overall effect of participating in GVCs on domestic labor compensation share is negative. However, forward participation in GVCs perform better than backward GVCs participation in stabilizing domestic labor compensation share. Capital-biased technological progress and availability of overseas labor are conditions under which the GVCs participation undermines domestic labor compensation share. This paper propose to seize the opportunity to increase the labor compensation share through measures and policies, such as promoting fair competition in domestic market, servitization of industrial structure and the establishment of relational value chains.