The Employment Effects of Global Value Chains

ABSTRACT

Due to advances of information, communication, and technology and reductions in trade barriers, countries are increasingly deeply engaged in global value chains (GVCs). In the article, we theoretically and empirically show that a country’s position in GVCs has significantly positive effects on its employment level and structure. Countries located in a higher position in GVCs induce a larger demand for high-skilled labors and a more perfect employment structure. Empirical results further reveal that the position in GVCs will help improve employment structure in both developed countries and developing countries, and the employment effects of GVCs are statistically larger for capital-intensive industries than for labor-intensive industries. Moreover, by distinguishing international and domestic division of labor, we find that the employment effects of domestic value chains are larger than foreign value chains.

KEY WORDS:

• division of labor
• employment
• global value chain
• instrumental variable

JEL CLASSIFICATION:

• F1
• F4
• F31
• O24
• R15

Supplementary Material

Supplemental data for this article can be accessed here

Notes

1. https://globalvaluechains.org/concept-tools.

2. The second-order condition is to ensure that to develop new intermediates that rely heavily on skilled labors the demand for skilled labors will be increased significantly in the developed country, and the demand for unskilled labors will be reduced significantly due to the exit of old intermediates that rely heavily on unskilled labors.

3. It is worth noting that Koopman, Wang, and Wei’s (2014) framework will cause sector or country-level inconsistency when applied to bilateral, sectoral, or bilateral–sectoral level. Wang, Wei, and Zhu (2013) solve such problems by extending Koopman, Wang, and Wei’s (2014) framework to sectoral level, which is used in our article.

4. According to WIOD skill type, high-skilled labors refer to those who have received first or second stage of tertiary education; medium-skilled labors refer to those who have received secondary education or post-secondary non-tertiary education; low-skilled labors refer to those who have received primary education, first stage of basic education, lower secondary education, or second stage of basic education.

5. There are two alternative databases of WIOD. The primary reason why we use the 2013 release version of WIOD (1995–2011) instead of the 2016 release (2000–2014) is that key dependent variables used in our article such as high-skilled labors, medium-skilled labors, and low-skilled labors are missing in the 2016 release version WIOD Socio-Economic Accounts. Secondly and equally importantly, though the 2016 release covers more countries, sectors, and less years, its statistical caliber and standards are quite different from the 2013 release. Thus, it is not appropriate to combine them together.

6. For the classification of developed and developing countries, please see online supplementary note S1.

7. For the classification of labor-intensive and capital-intensive industries, please see online supplementary note S2.

Additional information

Funding

Professor Ma acknowledges financial support for this study from the Key Grant Project of Philosophy and Social Science Research of the Ministry of Education of China [No. 16JZD021] titled “Research on Forecast and Mitigation Mechanisms for Operational Risks of Cross-border E-commerce Enterprises”. This paper was also funded by the National Natural Science Foundation of China [No. 71803173] titled “Promotion of Cross-border E-commerce on the Enhancement of Global Value Chain Status”, the Project of Humanities and Social Sciences of the Ministry of Education of China [No. 18YJC790215] titled “Research on the Evolution of Trade Cost Based on Cross-border E-commerce” and the China Postdoctoral Science Foundation [Nos. 2017M620237 and 2018T110579].