Global Value Chains and the Skill-biased Effects on Wages in Korea

Global Value Chains (GVCs) are known to have a skill-biased effect on the wage structure in developed countries. If the skill groups are divided into two – high-skilled vs low-skilled groups – then the direction of the skill-biased effect is clear in the existing literature. Many studies have pointed out that deepening of GVCs has more detrimental effects on the low-skilled group, though the size of the effect was controversial. The OECD (2015) argued that a skill-biased effect on wages was not that large, and it was also associated with the type of engagement of GVC participation.If the skill levels are divided by three – high-skilled, medium-skilled, and low-skilled groups – then the direction of the skill-biased effect is obscure, especially that of the medium-skilled group. It is about which groups – medium-skilled vs low-skilled– suffers more detrimental effects from deepening GVCs. Acemoglu and Autor (2011) argued that employment and wages in many developed countries were recently polarized, which means that international competition due to globalization has targeted primarily medium-skilled labor. Low-skilled jobs, such as cleaning or nursing care services, are relatively difficult to off-shore, since those jobs are offered on a person-to-person basis. However, technology development and its impact on GVCs have intensified in recent years, and the negative impact on low-skilled workers is more significant.This study analyzes the skill-biased effect of GVCs on wages in Korean manufacturing and derives policy implications. Skill groups are divided into three groups – high-skilled, medium-skilled, and low-skilled- according to the education level. To derive the policy implications, we also refer to the German case. The German economy, as well as the Korean economy, has grown significantly with the GVCs in the 2000s