The chart shows that wage inequality tends to decline in developing countries as they integrate into global value chains (GVCs). But among higher-income countries, the opposite holds: Wage inequality tends to grow alongside GVC participation. Wage inequality is measured by the Gini Index, which ranges from 0 (perfect equality) to 100 (maximum inequality). Changes in the index are estimated by comparing a country’s actual wage distribution with a hypothetical scenario of no GVC participation.
GVC participation affects the wage distribution within countries in two ways. Directly, it boosts labor earnings for lower-skilled workers in developing countries by reallocating resources towards labor-intensive export sectors. Indirectly, however, higher GVC participation is linked to an increase in routine, lower-paid tasks, which can depress earnings for lower-skilled workers and exacerbate wage inequality. The net effect of these opposing forces varies by country. In developing countries such as Mexico and Indonesia, the direct benefits of GVC participation outweigh the indirect drawbacks, leading to a net reduction in wage inequality.
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