Labour demand in global value chains: Is there a bias against unskilled work?

Abstract

Rodrik (2018) hypothesises that technology used in global value chains (GVCs) is biased against the use of unskilled workers. To test this hypothesis, we introduce a GVC production function in which final output is produced by means of factor inputs from all countries that participate in the GVC. In contrast, previous studies only consider one stage of production using inputs from a single country. We derive substitution elasticities and labour demand bias in a system of translog GVC cost equations. We find that technical change in GVCs was strongly biased against the use of low-educated workers, neutral for middle-educated workers and in favour of high-educated workers. We show that the biases moderate the potential of GVCs to increase demand for low-educated workers in low-income countries.