The smile curve and labour’s cry in global value chains: evidence from value-added, labour and capital income shares

This paper introduces a new method for measuring the smile curve from the perspective of factor income distribution. We construct three types of curves in global value chains, with value-added rate, labour income share, and capital income share serving respectively as the vertical axis, and the number of production stages from the final goods sector as the horizontal axis. Using data on the manufacture of computer, electronic, and optical products in China and the United States, we find that both the value-added rate and the capital income share exhibit the classic U-shaped smile curve. High value-added activities and high returns to capital are concentrated at both ends of the value chain. Conversely, the labour income share displays an inverted U-shaped ‘crying curve’ pattern. This finding sheds new light on income inequality under GVCs.