The labour share along global value chains: perspectives and evidence from sectoral interdependence

Abstract

This article proposes a novel framework to investigate how globalisation affects workers’ share of value added. We explore functional income distribution by looking at industrial interdependence and thus identifying Global Value Chains (GVCs) as the unit of analysis; we then track inputs’ composition and their labour share evolution along the value chains. First, we find widespread heterogeneous patterns across value chains’ components, accounting for the direct, domestic and foreign requirements of the chains, inside an overall declining trend in the vertical labour share. Second, through a shift-share analysis, we investigate what drives such decline in the vertical labour share: albeit country-industry idiosyncratic factors accounted by the within-input component contribute the most, between-input reallocation—GVCs restructuring—matters, particularly highlighting the role played by foreign contributions. Finally, through a parsimonious regression estimation, we confirm the main results found in the shift-share analysis highlighting the role played by countries’ development level and structural change towards services. In essence, we provide evidence of the recombination of inputs toward emerging economies and service-based activities. Such recombination negatively affects GVCs labour share dynamics. Overall, our methodology contributes to linking the processes of fragmentation of production and the changing international division of labour with the ensuing implications for functional income distribution.