Within- and between-firm wage inequalities and trade integration in GVC

This paper examines between- (inter) and within- (intra) firm wage inequality using rich employer-employee data for 12 European countries. We confirm that much overall wage inequality is observed within sectors and within occupations. The share of the within- and between-firm components in overall wage inequality varies across countries. We estimate the link between involvement in global value chains (GVCs) and wages differentiating into the within- and between-firm components and test the hypothesis that there is a different effect of GVCs on wages depending on the position in a value chain (close to or far from the final demand). The results indicate that the between-firm wage component is the main channel through which involvement in global value chains is materialised. However, the exact sign of the relationship between GVC growth and wages (conditioned on upstreamness) is country-heterogeneous albeit its marginal economic significance.

Automated summary

This study examines wage inequality within and between firms in 12 European countries, finding that most wage inequality occurs within sectors and occupations, with the proportions of within- and between-firm components varying across countries. The results suggest that involvement in global value chains primarily affects wages through the between-firm component.