The Division of Labor in Production Networks

Introduction

The division of labor - breaking down work into tasks so that workers can specialize in a subset of tasks - is believed by many economists to be key to economic progress, by providing efficiency gains when producing goods and services. A key feature of the modern economy is that the division of labor is increasingly taking place between firms - in a production network - as firms fragment production along the supply chain, both within and across borders (Johnson and Noguera, 2017).

Project Objectives

This project aims to provide new frameworks and novel evidence on how deepening production networks shapes the division of labor within and across countries, with particular emphasis on labor market implications of production networks.

Research Questions

Specifically, DIVISION will investigate how production networks jointly shape efficiency and equity:

1. What are the economic effects of deepening production networks on efficiency, specialization, and growth?
2. What are the effects on wages, the skill premium (skilled relative to unskilled wages), and earnings inequality?

Methodology

This comprehensive and ambitious analysis includes developing new methods and economic frameworks as well as providing new datasets and novel empirical evidence.

Context and Importance

Economic growth has slowed down since the 2007-08 global financial crisis. European firms are getting older and less dynamic, and economic inequality is increasing in many parts of the world.

A rigorous analysis of the role of production networks for efficiency and equity is therefore urgently needed to address today’s main societal challenges.