Global value chains and employment in developing economies

Abstract

The emergence of global value chains – whereby goods that used to be produced within one country are now fragmented and distributed across global networks of production – has offered developing countries new opportunities to integrate into the global economy. This has also had fundamental impacts for workers in developing countries. The chapter shows that higher earnings and employment within sectors and firms is associated with GVC integration, which also supports other spillovers that operate through labor markets. But it has also had distributional implications of where jobs go and the types of jobs they are. Jobs growth has occurred directly in the export sector, as well as indirectly through linkages of exporting firms to domestic, input-supplying firms. Employment creation and wage gains have been biased towards more skilled workers in developing countries, which contrasts with the predictions of trade theory. The skill-biased nature of GVC trade is associated with increased complexity of global supply chains as well as increased use of skill-intensive inputs, notably services. New emerging trends, including automation and digitization, may further determine how employment in developing countries will be affected by GVC trade in the future. The findings point to education as well as trade and labor policies as important factors for strengthening the GVC-labor relationship. • The emergence of GVCs has offered developing countries opportunities to integrate into the global economy, which has had a significant impact on jobs and income in GVC sectors and firms. Integration can have additional benefits for the wider economy as most jobs are generated through upstream domestic supply chains. • Across the developing world, demand for skilled labor is rising. GVCs reinforce this trend by supporting more complex industrial organization and by relying on complementary skill-intensive services inputs. • The impacts of technological change and increased productivity on employment linked to GVCs have been offset by growing consumer demand. 64 • Technological innovation, supply chain trade, and workers in a globalized world