Lei Wang1✉& Thomas Stephen Ramsey1

The participation of Global Value Chains (GVCs) in the world’s major economies haschanged from rising to falling since 2010. Based on GVCs income, SDA method and multiplepanel regression, this paper explores the cross-cycle effect, mechanism and persistencepaths of GVCs participation on domestic labor compensation share in 51 economies from2000 to 2018. The paper concludes that the overall effect of participating in GVCs ondomestic labor compensation share is negative. However, forward participation in GVCsperform better than backward GVCs participation in stabilizing domestic labor compensationshare. Capital-biased technological progress and availability of overseas labor are conditionsunder which the GVCs participation undermines domestic labor compensation share. Thispaper propose to seize the opportunity to increase the labor compensation share throughmeasures and policies, such as promoting fair competition in domestic market, servitizationof industrial structure and the establishment of relational value chains.

Introduction

Since the 1980s, information technology and trade liberalization have reduced trade costs and made vertical specialized production and task trade possible. This has led to theemergence of global value chains (GVCs). Participating in GVCsmeans a broader market, higher production efficiency, and fastergrowth of national wealth (Baldwin and Lopez-Gonzalez, 2015).Developed countries such as the U.S., Germany, and Japan, aswell as developing economies like China, Vietnam and Ethiopiahave experienced growth in per capita income, national welfareand better jobs after participating in GVCs (De Loecker et al.,2016; Antràs et al., 2017; Kangile et al., 2021). According to theWorld Development Report study, for every 1% increase in GVCsparticipation, per capita income increases by more than 1%(World Bank, 2020). However, whether the national wealthgrowth effect of participating in GVCs is equally distributedamong individuals remains to be studied.According to some scholars, GVCs are one of the most important features of 21st-century capitalism and have created crucialeffects on the decline in domestic labor compensation share (Sell,2019). This is because most of the revenue generated by GVCs isconcentrated among a few large multinational companies, and onlya small part of these gains is passed on to consumers and othersuppliers. From a cross-country perspective, the higher the participation of GVCs in developing countries, the lower its markups.Over half (55%) of the value added in GVCs is concentrated in only21 countries (Timmer et al., 2014). From the gender dimension,women are mostly placed in low-skilled positions and rarely inleadership and management positions (Veliu et al., 2009; WorldBank and IFC, 2014; Muñoz-Boudet et al., 2018).

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Will falling domestic labor compensation sharereally beimproved when global tradeslowdown.pdf