Global Value Chains, Offshoring and Wages

Global value chains (GVCs) have proliferated mainly because of their efficiency, in that GVCs enable their participants to specialize in the activity in which they have comparative advantage.In addition, participation in GVCs can lead to increased job creation, increase in the economy's income and helps further economic growth and development.Naturally, however, there tends to be heightened concerns when it comes to offshoring activities, especially in the source economies.This study attempts to analyze the relationship between offshoring and wages among the 40 countries and 35 industries covered by the World Input-Output Database (WIOD), by measuring both narrow and broad offshoring.Data indicate that the majority of both narrow and broad offshoring occurs in the manufacturing sector.However, both narrow and broad offshoring in the services sector have also been rising.In addition, the dispersion in both wages and hours worked among workers of different skill groups can be seen quite clearly.Results show that the trend in the negative change in low-skill wage exists regardless of the degrees of offshoring activities.Medium-skill wages seem to be affected much more by offshoring.Education, financial intermediary and post and telecommunications services all experienced the biggest decline in low-skill wages, an increase in narrow offshoring and a decrease in broad offshoring.This suggests there might be a substitution effect of offshoring for low-skill labor.Medium-skill wages in education, financial intermediary and renting of machinery and equipment services show a similar trend.