Fragmentation, Incomes and Jobs. An analysis of European competitiveness

Increasing fragmentation of production across borders is changing the nature of international competition. It increasingly plays out at the level of activities within industries, rather than at the level of whole industries. As a result, current measures of competitiveness such as export market shares become less informative for the policy debate and new measures are needed. In this paper we study the links between fragmentation and the creation of income and jobs based on a recent multi-sector input-output model of the world economy. Using this model, we measure the income and jobs in a country that are directly and indirectly related to the production of manufacturing goods, called GVC (global value chain) income and jobs. We find that during 1995-2008 growth in GVC income and jobs is much lower than growth in gross exports in all European countries, in particular Germany and Eastern European countries that rely heavily on imported intermediates. We also find that fragmentation does not necessarily lead to destruction of jobs in advanced countries. The number of GVC jobs located in the manufacturing sector declined, but this was more than compensated for by GVC job creation in supporting services in most EU countries. Actually, in 2008, almost half of the jobs related to global manufacturing production were outside the manufacturing sector. We also find a magnification of comparative advantage of EU countries as there is a shift away from activities in GVC production carried out by low-skilled workers towards those carried out by higher skilled workers. Taken together our results show that a GVC perspective on competitiveness provides new measures that can inform the policy debates on globalisation.