Participation in Global Value Chains and Rent Sharing by Small Firms in Viet Nam

It is well documented that firms that participate in global value chains (GVCs) are larger and more productive, maintaining higher profitability compared to those without such connections. This paper asks the novel question of whether higher profits being connected to GVCs are shared with employees in the form of better pay. We investigated this rent sharing, using a matched employer–employee dataset of Vietnamese small firms surveyed between 2013 and 2015. We found that positive profits would feed into individual wages after accounting for the firm and employee attributes, as well as firm and employee fixed effects, but this is only found for those small firms without any involvement with GVCs. Rent sharing, on the other hand, is completely absent in GVC firms. We take this as evidence that GVC firms provide both higher wages and insurance against demand fluctuations.

Participation in Global Value Chains and Rent Sharing by Small Firms in Viet Nam