“Global Value Chains and Inequality with Endogenous Labor Supply” by Kei-Mu Yi
University of Houston
We investigate the effect of globalization on inequality in a framework that includes for global value chains. The key feature of such chains is that production of a final good occurs in a sequence of countries and industries. Our framework combines new research on modeling these chains within a multi-country, multi-industry, multi-factor framework in which occupational choice is endogenous. Workers with heterogeneous productivities choose industries and occupations based on their comparative advantage over different production stages and occupations. We develop implications of how lower costs of international trade affect both the nature of global value chains and inequality, and study the underlying mechanisms. We apply our framework into a quantitative setting with 28 countries, 5 educational types, 4 industries, and 5 occupations.