Factor Incomes in Global Value Chains: The Role of Intangibles

Recent studies document a decline in the share of labor and a simultaneous increase in the share of residual ("factorless") income in national GDP. We argue the need for study of factor incomes in cross-border production to complement country studies. We define a GVC production function that tracks the value added in each stage of production in any country-industry. We define a new residual as the difference between the value of the final good and the payments to all tangibles (capital and labor) in any stage. We focus on GVCs of manufactured goods and find the residual to be large. We interpret it as income for intangibles that are (mostly) not covered in current national accounts statistics. We document decreasing labor and increasing capital income shares over the period 2000–14. This is mainly due to increasing income for intangible assets, in particular in GVCs of durable goods. We provide evidence that suggests that the 2000s should be seen as an exceptional period in the global economy during which multinational firms benefitted from reduced labor costs through offshoring, while capitalising on existing firm-specific intangibles, such as brand names, at little marginal cost.