The Impact of Firms' GVC Participation on Wages

The expansion of global value chains (GVCs) has reshaped labor markets in developed countries, influencing both wage levels and inequality. By linking the "Basic Survey of Japanese Business Structure and Activities" with the "Basic Survey on Wage Structure,†this study employs the Mincer model to empirically examine the effects of a firm’s GVC participation on workers' wages. The results indicate that GVC participation is associated with higher wages across nearly all worker characteristics, with both direct and indirect GVC firms offering wage premiums relative to non-GVC firms. Moreover, GVC participation appears to mitigate the wage inequality between male and female workers, non-production and production workers, and non-routine and routine workers. However, these benefits are not distributed evenly. Cognitive and regular workers experience greater wage gains, whereas manual and non-regular workers face lower wage growth, leading to a widening wage gap. This finding aligns with the Stolper-Samuelson theorem because Japan, a developed country, specializes in capital- and skill-intensive production while offshoring labor-intensive tasks. These findings have significant implications for Japan’s labor market, where wage inequality persists despite prolonged wage stagnation. As many Japanese firms are likely to engage in GVCs and many GVC firms faced with shrinking domestic markets intensify their participation in GVCs, the wage disparity between cognitive and manual workers, as well as between regular and non-regular workers, may further intensify. To cope with this problem, policies should focus on reskilling and upskilling manual and non-regular workers to ensure that they benefit from globalization.