Productivity and wage effects of firm‐level upstreamness: Evidence from Belgian linked panel data

Abstract

This paper is the first to estimate the impact of a direct measurement of firm-level upstreamness (i.e. the stepsweighted distance-before the production of a firm meets either domestic or foreign final demand) on productivity and wage costs. To this end, we merged detailed Belgian linked panel data, covering all years from 2002 to 2010, with a unique dataset containing accurate information on the yearly position of each firm in the value chain.We rely on the methodological framework pioneered by Hellerstein et al. (Journal of Labor Economics, 1999, 17, 409) to estimate panel data models at the firm level.Controlling for key worker and firm characteristics, our GMM-SYS and FE-IV estimates show that firms positioned more upstream (i.e. further away from the final consumer) create more value. Our results also indicate that the impact of firm-level upstreamness is stronger on productivity than on wage costs, which implies that profitability is fostered. More precisely, in line with Belgium's strong labour market institutions, our estimates suggest that the productivity gains associated with upstreamness are shared almost equally between wages and profits.

Wage differences according to workers' origin: The role of working more upstream in GVCs

“…A related study is that of Ju and Yu (2015), who use Chinese data and find that firms that are higher up in the value chain are more productive. and Mahy et al (2022), using Belgian panel data, provide a similar conclusion and confirm De Backer and Miroudot (2013) assertion that companies need to move up the value chain. Specializing in more upstream activities, according to the OECD, is also likely to increase firms' control over high-value, downstream stages of the production process and thus to promote economic growth.…”

“…Mahy et al (2022) identify several channels through which upstreamness can affect productivity, either positively or negatively. First, upstreamness can foster productivity by increasing the market power of firms and allowing them to set higher prices for their products.…”

“…Szymczak et al (2019), using industry‐level data on Central and Eastern European countries, show that workers earn higher wages when employed in sectors located either at the top or at the bottom of the value chain. Mahy et al (2022) examine a similar question using firm‐level data for the Belgian private sector, which is characterized by strong collective bargaining and a high level of union coverage (Garnero et al, 2020; Kampelmann & Rycx, 2013). Their findings suggest that the higher productivity gains achieved by firms operating more upstream in GVCs are shared equally between profits and labour costs.…”

“…More precisely, upstreamness is likely to influence the value added generated by firms, which can then be shared between profits and wages depending on labour market characteristics. Mahy et al (2022) identify several channels through which upstreamness can affect productivity, either positively or negatively. First, upstreamness can foster productivity by increasing the market power of firms and allowing them to set higher prices for their products.…”

Does Over-Education Raise Productivity and Wages Equally? The Moderating Role of Workers' Origin and Immigrants' Background

“…This approach is standard in the literature on firm-level determinants of productivity and wages (e.g. van Ours and Stoeldraijer, 2011;Buhai et al, 2017;Mahy et al, 2021). It boils down to simultaneously estimating a system of two equations (one in levels and one in first differences) and relying on internal instruments to control for endogeneity.…”