Within- and between-firm wage inequalities and trade integration in GVC

Abstract

This paper examines between- (inter) and within- (intra) firm wage inequality using rich employer-employee data for 12 European countries. We confirm that much overall wage inequality is observed within sectors and within occupations. The share of the within- and between-firm components in overall wage inequality varies across countries. We estimate the link between involvement in global value chains (GVCs) and wages differentiating into the within- and between-firm components and test the hypothesis that there is a different effect of GVCs on wages depending on the position in a value chain (close to or far from the final demand). The results indicate that the between-firm wage component is the main channel through which involvement in global value chains is materialised. However, the exact sign of the relationship between GVC growth and wages (conditioned on upstreamness) is country-heterogeneous albeit its marginal economic significance.

KEYWORDS:

• Wage
• GVC
• upstreamness
• inequalities

JEL Classifications:

• F14
• F16
• J31

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 According to the latest statistics, about 60% of global trade involves intermediate inputs and services in GVCs (Ge, Fang, and Jiang 2019).

2 This strand of research mainly analyses the impact of U.S. imports from developing countries on wage inequalities. For more, see Lee & Yi (2018).

3 This asserts that trade liberalisation results in a rise in wages for skilled workers in high-skilled countries but a fall for less-skilled ones (among others, see Bernard et al. 2007; Goldberg and Pavcnik 2007).

4 On the other hand, recently, the analysis of service sectors in this matter is becoming more and more important (López González, Meliciani, and Savona 2019).

5 Changes in the share of FVA in exports in the years 2004–2014 are presented in Figure A1 in the Appendix.

6 https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Gross_domestic_expenditure_on_R_%26_D,_2007_and_2017_(%25,_relative_to_GDP).png; accessed 08.05.2021.

Additional information

Funding

This research has been conducted within the project financed by the National Science Centre, Poland (Narodowe Centrum Nauki – NCN) – decision number DEC-2015/19/B/HS4/02884.