Trade, global value chains and wage-income inequality

The rise in global value chain (GVC) participation has coincided with significant changes in the distribution of wage income both within and across countries. This paper sets out to identify the linkages between these phenomena. It shows that GVC participation has a small effect on the distribution of wages and, when it has, it can reduce wage inequality when it concerns participation related to low-skilled segments of the labour force. This suggests that the potential tensions between equity and aggregate economic outcomes of GVC participation hold only in particular cases, namely when participation relates to high-skilled segments of the labour force. For policy-makers seeking to maximise the benefits of GVC participation, questions of a more equitable distribution of returns to workers might focus on skill-upgrading of low-skilled labour by promoting further tertiary education and development of skills.