The effect of global value chain participation on the labour share – Industry level evidence from emerging economies

Alexander Guschanski and Ozlem Onaran

No 31973, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: We present an econometric analysis of the determinants of the labour share in seven emerging economies from 1995 to 2014. We focus on the effect of global value chain participation, in particular offshoring from advanced to emerging economies based on global input-output tables. The use of industry-level data allows us to distinguish the impact on workers of different skill groups within manufacturing and service industries. We find that integration into global value chains with advanced economies reduces the labour share in emerging economies, in both manufacturing and service industries, particularly for medium-skilled workers. Global value chain participation increases productivity, but it also reduces the bargaining power of labour and allows firms to charge a higher markup, leading to a decline in the labour share. In contrast, higher union density and government consumption spending increase the labour share. Labour in emerging economies loses out as production becomes more integrated across borders. Our results indicate that reversing the fall in the labour share requires changes in labour market institutions and fiscal policies to improve the bargaining power of labour.

Keywords: labour share; income distribution; emerging economies; global value chains; union density; technological change (search for similar items in EconPapers)
JEL-codes: E25 F66 J50 (search for similar items in EconPapers)
Date: 2021-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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