Effects of Upstream Positions in Global Value Chains on Skilled Labor Wage Share in Chile: Evidence from Plant-Level Panel Data

Although upstream positions in GVCs are expected to expand unskilled-intensive activities and reduce wage inequality in developing countries, empirical studies based on cross-country analysis have largely failed to provide evidence supporting the theoretical prediction. Employing exogenous industry-level variations and combining industry-level GVC indicators with plant-level detailed panel data, this study empirically analyzes whether upstream positions in GVCs are negatively associated with skilled labor wage share in Chile from 1995 to 2006. The results revealed that upstream positions in GVC were negatively associated with skilled labor wage share, indicating that upstream activities are related to unskilled- intensive tasks, as expected. Although the upstream positions were positively associated with skilled labor wage share in highly technological-intensive plants, the number of such plants was very limited. The findings were robust to the exclusion of affiliates with changing their industry affiliations and control for the persistent effect of the dependent variable and endogeneity of plant-level variables. Additionally, we found that the negative effects of the upstream positions in GVCs are primarily derived from plants operating in industries that were initially located in downstream position and shifted towards upstream position.