Skill-based functional specialization in trade: an input–output analysis of multiscalar value chains in Brazil

ABSTRACT

Sophisticated spatial labour markets can promote better opportunities for functional upgrading in value-added trade. This paper estimates the skill-based functional specialization in Brazilian labour factor content in trade in value-added (LTiVA), considering different geographical scales. We combined an interregional input–output model for Brazilian states with occupational data to identify the skill intensity embedded in LTiVA based on the hypothetical extraction method (HEM) technique. Our findings show that the largest Southeastern economic area specializes in highly sophisticated functions, while the rest of the country embodies low skills in value-added trade for domestic and global trade levels. Furthermore, the results reveal a central role for the São Paulo state governing the subnational value chains and reinforcing the international uneven spatial functional division pattern at the subnational level.

KEYWORDS:

• skill-based division of labour
• functional specialization
• labour factor-content trade
• trade in value-added (TiVA)
• value-added exports

JEL:

• F60
• R12
• R15
• R23

ACKNOWLEDGEMENTS

We are very grateful to Dr Edivaldo Neves Júnior for kindly sharing with us his estimates of the skill-content levels for each code of the Brazilian Classification of Occupations (CBO). We greatly appreciate the collaboration of the Regional and Urban Economics Lab at the University of São Paulo (NEREUS-USP) for sharing the updated database of the IRIO table for the Brazilian economy. The corresponding author extends his thanks to professors Marcelo Lufin and Eduardo Haddad, who wisely showed the broad possibilities of input–output models for the regional science field, and to professors Augusto Alvim and Miguel Atienza for support during the research.

DISCLOSURE STATEMENT

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Notes

1 In this sense, analyses by Markusen (2007) in the United States show how the complementarity and differences between both industrial and occupational approaches allow one to understand regional inequality and economic development opportunities.

2 The authors proposed an interregional extension of the HEM method to measure embedded water content in interregional and international flows of the Moroccan economy.

3 Appendix I in the supplemental data online details the regional and sectoral structure.

4 In order to identify the occupation of each individual, we use a detailed database that covers the formal labour market. In this sense, informal professionals are excluded because they are not counted in the Ministry of Economy’s database that we adopted here. Likewise, the IRIO used seeks to represent the structure of the productive economy.

5 As defined by the Brazilian Classification of Occupations (CBO), which follows the International Classification of Occupation.

6 ONET is part of the US Department of Labor, Employment & Training Administration and it developed the standardization of related occupations in the labour market.

7 Maciente (2013) made a set of variables from the ONET compatible with 2702 occupations of the CBO, thereby obtaining a measure of the general level of skills required in the national formal labour market. Neves et al. (2019) derived a vector of intensity of skills required for each of the CBO codes.

8 The existence of matching in the labour market is assumed.

9 In general, the literature adopts the classic approach of the functional specialization of workers (Massey, 1984; Brunèse, 2008; Timmer et al., 2014, 2019). Our approach provides a more refined perspective when considering the type of worker’s occupation and the measurement of the degree of labour sophistication. In order to promote the discussion about different methodological perspectives to consider work in the VA, we show results in the supplemental data online that consider the standpoint of occupational groups according to the CBO classification itself.

10 For a complete list with the codes of occupations (CBO), the skill-intensity level and the respective quintiles, see the supplemental data online.

11 The IRIO data are aggregated in [AQ33] SCN, representing two and three digits of [AQ34] CNAE, whereas we classify companies and workers based on Annual Social Information Relation (RAIS) data, which detail the main activity of each company at the five-digit subclass CNAE.

12 The Distrito Federal (Brasília) shows a higher share. It hosts the federal government, and its economy gravitates around government-related activities. Its productive structure is atypical compared with the other states, as it shows the highest share of high-skill workers and wage levels in the country.

13 The state of Amazonas is an exception because it hosts a highly subsidized tax-free import zone located in a small area in the state capital city, Manaus. International manufacturing firms assemble imported parts into products delivered to the rest of the country.

Additional information

Funding

This work was supported by the Fundação de Coordenação de Aperfeiçoamento de Pessoal de Nível Superior (CAPES) from the Brazilian Ministry of Education [grant number 001]; and by the Dirección General de Postgrado (Universidad Católica del Norte, Antofagasta, Chile).