Labor market impact of disruptions in global value chains

This paper investigates the causal effect of global value chain (GVC)-related trade on the German labor market during the COVID-19 crisis, using a difference-in-differences approach combined with entropy balancing. The analysis of monthly establishment-level data from January 2019 to December 2021 shows that a one standard deviation increase in GVC-related trade with China leads to an increase in short-time work of up to 27 percentage points, with significant positive effects observed from May to October 2020. For this period, the regression results imply that a one standard deviation increase in GVC integration gives rise to an additional expenditure on short-time work of around 7.3 billion euros. In contrast, GVC-related trade with the whole world as a trading partner does not show a significant impact. Additional survey data support these findings, suggesting that establishments that are more GVC-integrated with China face more difficulties in obtaining inputs or dealing with suppliers in 2020.