Global value chains and employment: demand, productivity, and innovation as mediating channels

The employment effects of GVC participation depend on which of three competing mechanisms dominates: a demand channel, through which access to new markets expands output and hiring; a productivity channel, through which efficiency gains reduce labour demand; and an innovation channel, through which exposure to international standards stimulates technological upgrading, with ambiguous employment effects. Despite a large literature on each mechanism individually, no study has quantified their relative importance jointly at the firm level, a gap that matters both methodologically, because the three channels have potentially offsetting effects, and for policy, since without knowing which channel dominates it is impossible to predict how ongoing reshoring and regionalisation trends will affect firm-level employment. Using a panel of Italian firms observed between 2011 and 2019 and a multiple mediation framework, we decompose the GVC–employment relationship into the three channels simultaneously. GVC participation is associated with a 3% higher employment level relative to otherwise comparable non-GVC firms, flowing primarily through the demand channel, while the productivity channel provides a modest negative offset and innovation does not emerge as an independent pathway once turnover is accounted for. These results are robust to bootstrap inference and omitted-variable sensitivity analysis, and are stable across firms that adopt Industry 4.0 technologies or robots and those that do not.