Working Paper: A Cross-Country Analysis of Global Value Chain Positions and the Labor Share

Abstract

This essay examines the relationship between a country-industry’s relative position in global value chains and the global decline in labor shares. I hypothesize that country-industry pairs in more upstream GVC positions are associated with lower labor shares of value-added. Results from panel data regressions suggest that, consistent with my hypothesis, an increase in the relative GVC position one stage further from the final demand is associated with a statistically significant reduction of labor share by nearly three percentage points. This effect is robust in the full sample, OECD countries subsample, and among the industrial sectors. In terms of country-level heterogeneities, the same patterns can be observed for both high-income and upper-middle-income countries, but not among lower-middle-income countries. In terms of sectoral heterogeneities, the negative correlation is only prevalent in the subsample of industries without low-R&D intensities. Subsample analysis also indicates a negative association for the post-financial-crisis subperiod only.