Structural Change and Economic Dynamics 62 (2022) 407–419

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Structural Change and Economic Dynamics

journal homepage: www.elsevier.com/locate/strueco

Decomposing the Automotive Supply Chain: Employment, Value

Added and Occupational Structure
Marta Fana∗, Davide Villani
Joint Research Centre- European Commission, Seville

a r t i c l e i n f o a b s t r a c t

Article history: This paper studies the automotive supply chain in four European countries (Germany, France, UK and
Received 1 March 2021 Italy) between 20 0 0 and 2014. First, employing WIOD data processed via Trade-SCAN, we decompose
Revised 29 March 2022
the domestic and imported value added per unit of employment into a labour cost and functional in-
Accepted 4 April 2022
come distribution component. We argue that the standard interpretation of the German success, based
Available online 11 April 2022
on the compression of labour costs, does not provide a satisfactory account of the different performances
JEL classification: recorded among the four countries analysed. Second, we study the evolution of the occupational structure
R15 of the labour force involved in the supply chain building an indicator of occupational revealed compar-
J21 ative advantage. Our evidence suggest that the domestic segments of the supply chains are relatively
F16 specialised in providing employment at the top of the occupational distribution, while imported employ-
D33 ment is relatively more specialised in manual occupations. Moreover, the imported component shows a
Keywords: process of relative upgrading and “middling” of the occupational structure.
Input-Output Analysis © 2022 Elsevier B.V. All rights reserved.
Automotive industry
Global Value Chains
Outsourcing
Employment Structure

1. Introduction
The automotive sector is one of the key manufacturing indus-
tries in Europe. It represents the first sector in terms of intra-
European exports and the second one in terms of extra-European
exports (EUROSTAT, 2020a, 2020b). In 2014, it directly employed
more than two million workers in Europe, and more than six
million if the indirect links of production are taken into con-
sideration (Villani and Fana, 2021). This industry has also been
heavily involved in the process of outsourcing and offshoring
(Sturgeon et al., 2008) and it has been historically pivotal in shap-
ing national productive capacity (Pardi et al., 2020).
The objective of this paper is twofold. First, it maps the process
of outsourcing and offshoring the automotive supply chain focus-
ing on the geographical origin of the employment embodied in in-
termediate inputs, and it assesses the evolution of value added per
unit of employment of the offshored production in relation to the
domestic component of the supply chain. Specifically, we study the
automotive supply chain in four countries (France, Germany, Italy
and the UK) between 20 0 0 and 2014. As will be shown below, the
final production of the automotive industry in these countries has
∗
Corresponding author
E-mail address: marta.fana@ec.europa.eu (M. Fana).
followed a quite distinct path, with Germany increasing and con-
solidating its position in the automotive market compared to the
other countries. Within this context, we propose a structural ac-
counting decomposition of the domestic and imported value added
involved in the automotive supply chain, distinguishing between
a money wage rate and a distributive component. This approach
represents an element of novelty since, unlike other studies that
focus only on the labour compensation component of costs (e.g.
Grodzicki & Skrzypek, 2020), it permits tracing the evolution of
functional income distribution within the supply chain.
The second contribution of the paper concerns the dynamic
of the occupational structure along the automotive supply chain.
Previous studies disaggregate the employment involved in the
global value chain (GVC) according to various supply-side at-
tributes of the labour force, such as gender (Schaffer, 2008) and
skills (Timmer et al., 2015). To the best of our knowledge, how-
ever, input-output studies that focus on the demand-side charac-
teristics are scarce. The present paper adds to this strand of lit-
erature by decomposing the domestic and imported employment
directly and indirectly participating in the automotive supply chain
according to its occupational composition. This decomposition pro-
vides an original interpretation of the process of offshoring, estab-
lishing which occupational profiles are relatively more involved in
the supply chain and how they have evolved over time. In this

https://doi.org/10.1016/j.strueco.2022.04.004
0954-349X/© 2022 Elsevier B.V. All rights reserved.
M. Fana and D. Villani
way, we are able to assess whether the process of offshoring has
been accompanied by a pattern of employment polarisation as pro-
posed by the literature on offshorability and Routine Bias Technical
Change (RBTC, Goos et al., 2014). According to this literature, it is
to be expected that manual occupations (highly routine) in the do-
mestic economies are more easily offshored, so their share in total
domestic employment decreases while it expands in the country
that provides intermediate goods. Hence, our analysis contributes
to this debate by mapping what types of occupation are more in-
volved in the supply chain, distinguishing between the domestic
and imported component.
To perform the empirical analysis we employ data from the
World Input-Output Database (WIOD) (Timmer et al., 2015) using
Trade-SCAN (Trade-Supply Chain Analysis), a tool of analysis that
has been recently developed by the Joint Research Centre of the
European Commission (Román et al., 2019). One crucial character-
istic of this tool is that it allows a detailed quantification of the
different steps involved in the supply chain which avoids double
counting (Arto et al., 2019). To address the second objective of the
paper, we combine data obtained from Trade-SCAN with industry-
level occupational data provided by the European Labour Force
Survey (EU-LFS).
The paper is organised as follows. After this introduction, sec-
tion 2 reviews the relevant studies on the process of offshoring in
the European automotive supply chain and discusses our contribu-
tion in relation to the existing literature. Section 3 describes the
quantification methods. The results are presented in section 4 and
section 5 concludes the paper.
2. Background and motivation
In the last two decades, several studies have dealt with the
process of offshoring in the automotive supply chain in Europe.
One group of authors has focused on the different strategies fol-
lowed by European car producers. Even though offshoring is a
common feature of contemporary production, there are important
differences across countries in the modalities of its implementa-
tion and in terms of occupational consequences for the local econ-
omy. For example, German automakers have mainly offshored the
intermediate phases of production, keeping the final stages domes-
tic, while the French automotive industry has experienced a signif-
icant reallocation of all steps of production (Celi et al., 2018). In
Italy, the major car producer, FCA (formerly Fiat), has promoted a
strong process of offshoring that is reflected in a sharp decline in
final output (Balcet and Ietto-Gillies, 2019).1 A high degree of in-
ternational integration is also a crucial aspect of British car man-
ufacturing, as testified by the increasing reliance on foreign inputs
of production. In the case of the UK, however, the higher level of
integration has not resulted in a significant reduction in output;
on the contrary, it experienced a slow but steady growth at the
beginning of the century (KPMG, 2014).
A key element in the process of offshoring in Europe is
the increasing participation of Eastern European (EE) coun-
tries as providers of intermediate inputs (Altzinger and Landes-
mann, 2008), which has been quite pronounced in the automotive
sector. In these countries, exports for the automotive sector grew
rapidly and amounted to more than 20% of total exports at the
end of the 20 0 0s (Warda, 2013). Pavlínek and Ženka (2011) show
that employment in the Czech automotive components industry
recorded a fivefold growth between 1995 and 2007, and its ex-
ports increased by fifteen times during the same period. Within
this context, German producers, whose imported inputs from EE
1
By final output we mean the production of cars that are absorbed by final de-
mand (i.e. private consumption and investments, government expenditure and ex-
ports).
408
Structural Change and Economic Dynamics 62 (2022) 407–419
countries grew considerably in the second half of the 1990s
(Nunnenkamp, 2006), are often indicated as the main clients of
the EE supply of parts and components, although all the countries
analysed in this paper have increased their imports from this re-
gion (Chiappini, 2012; Jürgens and Krzywdzinski, 2009).
Another strand of literature is concerned with aggregate
industry-level dynamics. Chiappini (2012) assesses the offshoring
of the French, German and Italian automobile industry. The au-
thor shows that the share of imported inputs increased between
1995 and 2007, with the French and German automotive indus-
tries embodying the highest share of imported inputs, followed by
Italy. This author, however, bases his analysis only on direct inputs
and is not able to capture the “real” origin of value added, that is,
where the value added embodied in the imported intermediate in-
puts originated. Other studies overcome this limitation by employ-
ing an input-output framework. Garbellini (2014) performs a de-
composition of the imported vertically integrated labour for twelve
activities in Italy and Germany between 1995 and 2008. With re-
spect to the automotive industry, her findings reveal that services
have the highest, and slightly growing, participation in total inputs
(approximately 40% of the total). Timmer et al., (2015) expand the
focus by including also the US, China and Japan. They demonstrate
that offshoring is a crucial feature of European automotive pro-
duction. Between 1995 and 2011, European countries account for
a perceptibly higher share of imported value added compared to
their Asian and American counterparts.
Few studies link the composition of the automotive supply
chain with its costs structure. In this respect, an original work is
that of Grodzicki & Skrzypek (2020) who analyse the evolution of
the vertically-integrated unit labour costs in the European automo-
tive industry. This type of analysis has the merit not only of esti-
mating the contribution of domestic employment to final costs, but
also of accounting for the costs of imported labour that directly
and indirectly contribute to unit costs.
Drawing from this latter stream of literature, this paper con-
tributes to the input-output studies of the automotive supply chain
from an innovative perspective. We decompose the value added
per worker embodied in the automotive supply chain according
to its domestic and imported component in vertically integrated
terms. Importantly, as will be detailed in section 4, we decom-
pose the domestic and imported value added per employment unit
into a labour cost and a functional income distribution component.
This constitutes an innovative approach to the study of the supply
chains since, unlike other studies that focus on the role of labour
costs (e.g. Grodzicki & Skrzypek, 2020), we also include distribu-
tional effects into the picture. Moreover, this structural account-
ing decomposition links the post-Keynesian literature on markup
pricing to the vertically integrated analysis and offshoring. Usu-
ally, standard markup pricing theory only accounts for the direct
value added and does not focus explicitly on the imported value
added (e.g. Blecker, 2011).2 Within an input-output framework it
is possible not only to decompose the direct labour costs, but also
to consider the indirect value added per employment unit that is
embodied in the domestic and imported intermediate goods.
The second main contribution of this paper concerns the study
of the occupational structure of the automotive supply chain and
its evolution over time. Existing input-output studies decompose
the labour force participating in the production process according
to certain attributes. For example, the employment structure has
been explored in terms of gender (Schaffer and Stahmer, 2006),
skill level (Ludwig and Brautzsch, 2014; Timmer et al., 2015) or a
2
There are some relevant exceptions. Bhaduri and Marglin (1990) explicitly in-
clude direct and indirect relations of production into their price equation. However,
as will be discussed in more detail in section 4, the interpretation of the firm-level
price equation in an input-output framework may be problematic.
M. Fana and D. Villani
mix of these two dimensions (Duarte et al., 2019). These studies
address supply-side endowments of the labour force (e.g., the skill
level, proxied by educational attainment), but usually do not deal
with the demand-side characteristics of the labour market, such as
the types of occupation demanded by employers along the entire
supply chain, i.e., considering simultaneously both direct and indi-
rect employment.
Even though input-output studies are usually more concerned
with mapping supply characteristics of the labour force, other
streams of literature show interest in demand factors, which are
considered to be drivers of structural change across industries and
countries. The RBTC literature argues that what are demanded and
traded in the labour market are not skills but tasks, which are de-
fined as the labour activities required to produce a certain out-
put (Autor, 2013). From this perspective, occupational structure is
the result of the demand by employers for a specific set of activ-
ities, i.e. tasks, required for production. Given the relationship be-
tween occupations and tasks, countries whose domestic produc-
tion specialises in high tech manufacturing will be characterised
by a higher share of technical professionals relative to craft and
unqualified workers than a country specialising in low tech in-
dustries, such as tourism. Within this strand of literature, several
contributions have emphasised that the likelihood of offshoring
parts of the supply chain depends mostly on the intensity of rou-
tine tasks involved in a specific occupation and on the technical
feasibility of performing tasks remotely. The higher the intensity
of routine-intensive tasks the higher the probability of their be-
ing offshored (Blinder, 2009; Blinder and Krueger, 2013). This view
supports the idea that the offshoring process is one of the main
determinants of the ongoing polarisation in the European labour
market where the relative significance of manual occupations de-
creases, while those occupations with a lower degree of routine
— those at the top (managers and professionals) and bottom level
(unqualified workers) of the occupational ranking — increase their
importance. Accordingly, we should expect that whenever a coun-
try increases its offshoring practices, the domestic economy will
register a drop in offshorable occupations (e.g., Manual workers)
while these occupations will grow in the country producing inter-
mediate inputs.
Other authors, however, are more cautious about establishing a
direct link between the adoption of technology, offshoring and po-
larisation in the occupational structure. In this respect, a relevant
contribution is that of Krzywdzinski (2017), according to whom the
different occupational composition of the automotive sector across
countries may depend on the “labour-use strategies” under the
same level of automation technology adopted on the shopfloor. Ac-
cording to this author, what primarily determines the occupational
composition across countries is not technology per se but institu-
tional factors that operate differently across countries.
At the same time, other studies challenge the idea that a
generalised occupational polarisation has taken place in all Eu-
ropean countries. Although a significant heterogeneity persists
across countries, the last two decades have witnessed a pro-
cess of occupational upgrading (i.e. increase in the employment
in top and medium-high level occupations) rather than a po-
larisation process (Fernández-Macías, 2012; Hurley et al., 2019;
Oesch and Piccitto, 2019). Along these lines, Jürgens and Krzy-
wdzinski (2009) and Krzywdzinski (2021) find that the automotive
sector shows an upgrading trend both in Western and Eastern Eu-
ropean countries, challenging the idea of a strong relative increase
in routine employment in offshored countries. These studies, how-
ever, do not adopt an input-output perspective to capture the indi-
rect relations of production and do not consider the employment
embodied in imported intermediate goods.
In light of this discussion, this paper’s proposed decomposition
of the entire supply chain according to the occupational structure
409
Structural Change and Economic Dynamics 62 (2022) 407–419
of the employment will contribute to this literature. This type of
analysis provides an element of originality since, to the best of our
knowledge, there are no other input-output studies that investi-
gate the supply chain according to occupational composition. Fur-
thermore, this methodology allows us to establish if the imported
employment is characterised by a divergent composition of occu-
pations compared to domestic employment, thereby contributing
to the debate on offshoring and occupational structure.
3. Research approach and methodology
To quantify value added, wages and the units of employment
embodied in the automotive supply chain according to their coun-
try and industry of origin we rely on the methodology proposed by
Arto et al., (2019). This methodology has the advantage that it al-
lows us both to decompose the bilateral trade content measured at
the border and to fully take into consideration the different coun-
tries and industries that participate in the global value chain. Fol-
lowing these authors’ methodology, it can be shown that the for-
eign value added and the domestic value added embodied in the
final exports of the producer country r can be obtained as follows:3
  T
frs
final =  vt C(r)tz Azr Lrr yrs (1)
z =r, t =r
final =  (v ) L y
drs r T
rr rs
(2)
The terms frs
and
final
drsare, respectively, the vectors of for-
final
eign and domestic value added embodied in the final exports from
country r to country s (with r = s ). The underlying assumption —
common in input-output studies — is that any unit of final out-
put, irrespective of its destination (domestic or foreign), embodies
the same value added content. The term vt indicates the vector of
value added coefficients in country t, C(r )tz is the multi-regional
Leontief inverse transaction matrix for countries t (with t = r) and
z where the transaction flows involving country r have been omit-
ted. The term Azr is the multi-regional matrix of technical coeffi-
cients indicating the intermediate inputs from country z required
for the production in country r. The vector vr is the domestic vec-
tor of value added coefficients and Lrr is the domestic Leontief
matrix (for country r). Finally, yrs is the vector of exports of final
goods (i.e. the vector of final demand of country s from country r
= s). Eq. (1) captures the foreign (direct and indirect) participation
in the supply chain, while Eq. (2) permits the quantification of the
domestic (direct and indirect) contribution to the production of fi-
nal goods.
Each element vtf c (frg)tz azr l rr yrs in Eq. (1) indicates the value
gh hi i
added from industry f in country t embodied in the intermediate
inputs of industry g in country z, to the industry h in country r
that is embodied in the final production of industry i (which in
this study corresponds to the automotive industry) in the producer
country r and that is exported to country s. We quantify the value
added produced in country t (the foreign country) and embodied
in the production of country r (the producer country, that is, Ger-
many, France, Italy or the UK) independently of the industry g and
country z that directly export intermediate inputs to country r.
In the same fashion, each element vrh lhi rr yrs in Eq. (2) is the
i
value added originating in industry h (all the industries contribut-
ing directly and indirectly to the automotive industry) of country r
which is then embodied in the final exports of industry i in coun-
try r to country s.
3
For an extended formulation and discussion of equations 1 and 2 see the Ap-
pendix and Arto et al., (2019). Upper case bold letters represent matrices, lower
case bold letters represent vectors. Operators   indicate diagonalisation and the
superscript T indicates transposed terms.
M. Fana and D. Villani
By substituting the vector of value added coefficients in
Eqs. (1) and (2) (v ) for the vector of direct employment coefficients
(or the vector of direct labour compensation coefficients) it is pos-
sible to estimate the amount of employment (or labour compen-
sation) that is imported or domestically needed for the production
of yrs .
There are important considerations that derive from the above
formulations. First, the presence of matrix C(r )tz avoids double
counting (i.e., domestic value added exported to other countries
and then embodied in imported inputs) of the value added from
country r which is exclusively accounted for in Eq. (2). This is
because the intermediate transaction matrix of country r has not
been included in the computation of matrix C(r )tz . Second, the de-
composition of Eq. (1) makes it possible to identify the source
of value added and to distinguish it from the country/industry
that directly exports intermediate inputs to country r. This point
is central as it permits us to quantify according to where value
and employment originated, regardless of the country from which
intermediate inputs are directly purchased. The estimations of
Eqs. (1) and (2) also have the additional advantage that, as stated
by Arto et al., (2019), this methodology has no endogeneity issues
since none of the elements on the right-hand side of Eqs. (1) and
(2) depends on gross exports, contrary to what happens in other
similar decompositions (Koopman et al., 2014).
Data obtained from Trade-SCAN makes it possible to estimate
exclusively to the amount of value added, employment and labour
compensation embodied in the final exports of the automotive in-
dustry. To estimate the total amount (i.e. amount consumed do-
mestically and exported) of value added, employment and labour
compensation involved in the supply chain we estimated the share
of exports in the final output using WIOD data. Multiplying the
inverse of this share for frsfinal
and drs
final
we obtain the amount of
value added (employment and labour compensation) directly and
indirectly embodied in the total final production of the automotive
industry.4 Formally, this is:
 
yr
frs
final
 i rs = frfinal (3)
yi
 
yr
drs
final
 i rs = drfinal (4)
yi
The term yr is the total final production in the automotive in-
 rs
dustry (i) in country r and y represents the total final exports
of the automotive industry from country r to country s (r = s).
The terms frfinal and drfinal are, respectively, the total imported and
domestic amount of value added (employment or labour compen-
sation). Each element of vectors frfinal and drfinal contains the value
added supplied by each country/industry of origin to the automo-
tive value chain of country r.
The analysis deriving from Eqs. (1)–(4) allows us to address our
first research objective, i.e. the mapping of the process of outsourc-
ing and offshoring in the automotive supply chain and the evo-
lution of value added per employment unit. To address the sec-
ond research objective, we shall combine input-output data with
industry-level data on the occupational structure of each country
4
This recalls the concept of “subsystem” or “vertically integrated sector” (see
Pasinetti, 1973). Each subsystem i embodies the requirements from all the indus-
tries (domestic and imported) participating, directly and indirectly, in the produc-
tion of industry’s i final output. Unlike Pasinetti (1973), in this paper the interna-
tional relations of production are explicitly accounted for, but the underlying the-
oretical framework is unchanged. In this sense, frfinal shows the amount of value
added (units of employment or labour compensation) by industry and country of
origin that is directly and indirectly embodied in the production of the final out-
put of the subsystem of interest, in this case automotive. In a similar fashion, drfinal
quantifies the domestic industry of origin of the units of employment directly and
indirectly embodied in the production of the automotive subsystem.
410
Structural Change and Economic Dynamics 62 (2022) 407–419
involved in the automotive supply chain. However, input-output
databases, such as WIOD, do not offer occupational data. To over-
come this limitation, we merge employment data obtained from
WIOD with the EU-LFS database published by Eurostat, which de-
tails the industry-level occupational structure for European coun-
tries.
To calculate the occupational composition of the employment
directly and indirectly involved in the automotive supply chain,
we adopt the following procedure. First, we define the occupa-
tional structure at the ISCO 1-digit level for each industry, using
EU-LFS data. For each country/region in our analysis we compute
a job share matrix, where the rows indicate the occupation and
the columns indicate the industry. Each cell of this matrix shows
the share of workers in a specific occupation in each industry. Fi-
nally, for each country/region we pre-multiply the diagonal of the
vector of total employment (obtained in Eqs. (3) and (4)) by the
job share matrix.5 By doing so, we obtain a matrix that details the
occupational structure in each industry contributing to the auto-
motive subsystem. As is conventional in input-output analysis, we
assume that the firms participating in the automotive supply chain
have the occupational structure of the whole industry. One limita-
tion of these estimations is that this procedure can be run only for
European countries since the occupational breakdown is not avail-
able for the rest of the countries.
The empirical analysis is performed employing TRADE-Scan
(Román et al., 2019), an analytical tool developed by the European
Joint Research Centre using data from WIOD (Timmer et al., 2015).
To simplify the presentation of the results, the original nine oc-
cupational groups (at one-digit level) offered by EU-LFS are clus-
tered into five categories: 1. Managerial Professions (which in-
cludes managers, professionals and associate and technical profes-
sionals); 2. Clerks and Sales workers; 3. Skilled Agricultural work-
ers; 4. manual workers (which include craft workers, machine op-
erators and assemblers); 5. Elementary occupations.
Finally, we cluster countries into six groups in addition to the
domestic (producer) economy: Core Europe (CE), Eastern Europe
(EE), Southern Europe (SE), China, Rest of the World countries with
Medium-High income (ROW-HI) and Rest of the World countries
with Medium-Low income (ROW-LI).6
4. Results
4.1. Offshoring in the European automotive industry: general
tendencies
We begin this section by analysing the evolution of final out-
put in the automotive industry in the four countries (Fig. 1, Panel
A). What is immediately evident is the difference between Ger-
many and the other countries. German automakers double their
final output between 20 0 0 and 2014, widening the gap between
them and the other producers. The other three countries record an
expansion in final output between 20 0 0 and 20 07 and a reduc-
tion after the global financial crisis. In France and Italy, the reduc-
tion is especially pronounced; in 2014 final output was lower than
in 20 0 0. At the same time, the role played by foreign demand in-
creases considerably (Fig. 1, Panel B). The share of final output ex-
ported grows in all four countries, absorbing most of the final pro-
duction. This growth is directed towards both European and extra-
European countries, although the latter increased their importance
after the global financial crisis (on the analysis of the exports, see
Gracia and Paz, 2017). Unsurprisingly, Germany is the country that
( t )r
5
This is Jt ffinal  for imported employment from region t and Jr drfinal  for domes-
tic employment in the producer country r and the term J is the job matrix.
6
See Table A1 in the Appendix for details on this classification.
M. Fana and D. Villani Structural Change and Economic Dynamics 62 (2022) 407–419

Fig. 1. Final output of the automotive industry (billions of constant US$ at constant 2010 prices, Panel A) and share (%) of exports of total output (Panel B). Source: WIOD.

Fig. 2. Share (%) of foreign employment (direct and indirect) involved in the automotive production by final producer (Panel A) and number of people employed directly
and indirectly in the domestic automotive supply chain (Panel B). Source: Authors’ calculations using WIOD and TRADE-Scan data.

exports the highest share of production among the selected coun-
tries.
The process of offshoring increased considerably until 2007 and
decreased afterwards (Panel A in Fig. 2). The result of these trends
is a net growth in the foreign employment participation for all
countries except Italy — the only country that in 2014 has similar
levels of foreign participation to those in 20 0 0. These tendencies
have been accompanied by the strong reduction of total (direct and
indirect) domestic employment embodied in the automotive sup-
ply chain (Panel B in Fig. 2). In 2014, all countries in the sample
record a lower number of persons domestically employed than in
20 0 0. This reduction is negligible in Germany and is more accen-
tuated in the other countries, especially in France, where the do-
mestic employment involved in the automotive supply chain halves
during the period.
Within this context, it is relevant to ask about the geographi-
cal origin of the offshored components of the supply chain and its
evolution over time. Fig. 3 shows that during the first subperiod
(between 20 0 0 and 20 07) the importance of Chinese employment
grew rapidly across all four producers. This trend is counterbal-
anced by the reduction in the participation of ROW countries (both
HI and LI).
Between 2007 and 2014 the automotive supply chain becomes
more Europe-centred, witnessing a marked increase in EE partici-
pation among all producers. At the same time, the other European
regions (CE and SE) tend to expand their participation in the sup-
ply chain, although to a lesser extent than EE countries. During the
same period, the participation of ROW-LI countries continues di-
minishing and Chinese employment shows a significant slowdown.
China’s participation increased slightly only in the British automo-
tive supply chains but decreased in the other three countries.
These findings suggest a considerable shift in the offshoring
pattern, which is often neglected in the literature. The composition
of imports of intermediate inputs oriented rapidly towards China at
the beginning of the 20 0 0s, but the role played by this country de-
creased in the second sub-period. After the global financial crisis,
the supply chains reorganised towards a greater contribution by
European countries, especially EE ones. Despite this growth, our

411
M. Fana and D. Villani Structural Change and Economic Dynamics 62 (2022) 407–419

Fig. 3. Origin of imported employment by region (as % of total imported employment). Source: Authors’ calculations using WIOD and TRADE-Scan data.

evidence suggests that the EE is not the predominant European domestic and imported component. The domestic and imported
region in terms of employment supply to all producers. Although value added per employment unit in the automotive subsystem (i)
EE countries expanded their participation, they represent the main can be decomposed as follows:
source of imported employment for Germany, but not for the other j j j
countries, whose main European regions in 2014 are CE countries Yi j Wi j + Wi j Lij  
= i
= wij + i
= wij + wij i
= wij 1 + μij
(for the UK and Italy) and SE countries (France). The latter case Lij Lij Lij Lij Wi j
Wi j
is imputable to the strong relationship between French car pro-
(5)
ducers and Spain (Chiappini, 2012). Moreover, it is worth observ-
ing that the participation of EE countries grew especially after the Where j = r, t. The term W represents total labour compensation
global financial crisis and not at the beginning of the century. In to employees and  represents total profits. From Eq. (5), a first
20 0 0, only Germany absorbed a considerable portion of employ- important element to highlight is that the value added per worker
ment from this region, signalling that the process of offshoring in depends on a labour cost component (i.e., the wage rate per unit of
this region started before the period of analysis covered in this pa- employment,
 w) and a functional income distribution component
per. It partly slowed down at the beginning of the century, and (μ = W ).
rebounded after the global financial crisis.7 The right-hand side of Eq. (5) bears similarities with the post-
Keynesian (Kaleckian) markup formulation of prices. However, as
analysed in detail by Steedman (1992), we should be cautious
4.2. Structural accounting decomposition of value added per unit of
when associating the standard markup obtained in a direct firm-
employment
level perspective to μ obtained in a vertically integrated frame-
work (as in Eq. (5)). First, it would be difficult to assign to the ver-
In this subsection we study the evolution of value added per
tically integrated markup a straightforward and tangible economic
unit of employment embodied in the automotive supply chain, dis-
meaning. In the standard Kaleckian theory of pricing, the markup
tinguishing between the domestic and imported component. These
Yir Yit
is considered a behavioural parameter used in the discussion of
magnitudes are expressed as Lri
and Lti
where Y indicates total (di- several issues, such as concentration, selling costs, price leadership
rect + indirect) value added, L total employment embodied in the etc.that are directly related to the firm-level dynamics. On the con-
supply chain, and the superscripts r and t indicate, respectively, the trary, vertically integrated markups, which are a weighted com-
bination of the markups of all the industries participating in the
subsystem, cannot be associated to immediately tangible economic
7
As discussed in Section 3, our analysis involves exclusively where value added features as in the standard post-Keynesian fashion. In other words,
is originated, independently from the country that directly provides intermediate the Keleckian theory of pricing is intended to be representative of
inputs to the producer country. Figures on direct exports of intermediate inputs
from EE would show a higher participation of EE countries because these flows
the behaviour of a firm operating in a certain industry, while the
tend to embody part of value added that originated elsewhere and then embodied subsystem analysis does not allow for this straightforward inter-
in the exports of intermediate inputs. pretation.

412
M. Fana and D. Villani Structural Change and Economic Dynamics 62 (2022) 407–419

Despite these differences, the decomposition of Eq. (5) provides
useful insights for the Kaleckian scholar also as it explicitly dis-
tinguishes between domestic and imported employment, labour
compensation and functional income distribution. Additionally, it
makes it possible to go beyond the standard markup formulation
that captures only the direct value added (direct labour costs and
markup) without tracing the value added provided by the labour
embodied in the intermediate (indirect) stages of production.8 As
is well known, intermediate goods and services represent most of
an increase in the wage share, while in Germany the profit share
grows considerably. Finally, in the UK the wage share in 2014 is
at very similar levels to those in 20 0 0. In France, Italy and the
UK the growth of the profit share was more pronounced in the
imported segment of the supply chain than in the domestic one,
even though the initial profit share was already higher in the im-
ported component. In Germany the situation is the opposite, where
t r
 ln( W it ) is considerably lower than  ln( Wir ).
i i

the inputs of production in contemporary capitalism. Operating in Table 1 also shows that there are differences before and af-
a vertically integrated framework permits us to capture and de- ter the global financial crisis. Between 20 0 0 and 20 07 the average
t
compose the source of value added for the embodied labour both yearly growth rates of the distributional component  ln( i
) ex-
Wit
in direct and indirect terms, that is, to account for the whole value
ceeded that of the imported wage rate lnwij ,
while after 2007
added embodied in the intermediate (domestic and imported) in-
this situation is reversed, with a more sustained growth of the
puts.
wage rate and a slightly decreasing profit share. In our view, this
Because we are interested in studying the evolution of the do-
can be imputed to the geographical reorganisation of the sup-
mestic and imported value added per worker, the right-hand side
ply chains. As presented in Fig. 3, after the global financial crisis
of Eq. (5) can be formulated in dynamic terms as follows:
the participation of European employment (characterised by higher
 
Yi j      wages) grows at the expense of imports from regions with lower
ln = ln wij 1 + μij = ln wij +  ln 1 + μij (6) labour costs, such as China or ROW-LI.
Lij
The decomposition derived in Eq. (8) can also help in examin-
Then, since: ing the trends shown in the final output of the producer countries
    (Fig. 1) in relation to the existing literature on competitiveness, es-
  1    μij  μij μij pecially in light of the different performance of the German auto-
 ln 1 + μ j
=  1+μ = j
=
1 + μi 1 + μij μij 1 + μij
i j i
motive subsystem compared to that of the other countries. A stan-
dard interpretation of the German success among mainstream and
μij
=  ln μij (7) some post-Keynesian scholars points to the process of wage mod-
1 + μij eration that was enforced in this country at the beginning of the
century. From this perspective, the salary freeze was the crucial
And:
determinant in the reduction in unit labour costs and the conse-
  
μij j
/Wi j j
Wi j j
quent increase in (labour) cost-competitiveness (e.g. Baccaro and
= i
 = i
   = i
Pontusson, 2016; Bibow, 2013; Kugler et al., 2018). The offshoring
1 + μij 1+ i
j
/Wi j Wi j Wi j + ij Yi j
of part of the supply chain in low wage countries added to the
Therefore: internal devaluation and contributed to determining the German
j performance.
 
 ln 1 + μij = i
 ln μij It is certain that the labour market reforms played a key role in
Yi j slowing the pace of growth of German wages, especially at the be-
ginning of the century. At the same time, Fig. 2 shows that, like the
Finally, the variation of domestic and imported value added per
other producers, Germany intensified its offshoring process with
worker can be re-expressed as:
regard to low(er) wage countries, which helped to transfer part
  j
Yi j   of the production to low(er)-wage countries. But there are some
ln = ln wij + i
ln μij (8) elements that emerge from our analysis that help to nuance this
Lij Yi j
interpretation of the German success. First, it is true that the im-
Eq. (8) decomposes the evolution of the domestic and foreign ported component within the German value chain expanded, but it
total VA per employment unit participating in the global automo- did so in the other countries too, especially in France and the UK.
tive supply chain of each producer countries into three elements: Moreover, between 20 0 0 and 2007, the foreign employment par-
j ticipating in the German supply chain was not cheaper than that
1. The change in the money wage rate, measured by lnwi ; involved in the other countries’ supply chains. Quite the contrary,
2. The initial distributive situation, as measured by the profit imported wages per worker were the highest in 2007 (
j
share, i
j ; Table 2) and their growth rate was above that of the other three
Yi
producers (Table 1). In the second subperiod, the yearly growth
3. The distributive dynamics in terms of shares, measured by
j of the imported wage rate is higher in the other three countries
 ln( i
j ). than in Germany. Nevertheless, in 2014 the imported wage per
Wi
capita in Germany continued to be the highest among the sampled
From this decomposition (Table 1), it emerges that the growth countries. Therefore, it is possible to assert that, although there
of the foreign value added per unit of employment is consider- was a clear labour cost differential between the domestic and im-
ably higher than the domestic one in all countries except Germany, ported components, German carmakers did not enjoy lower im-
where the two components increase at nearly the same rate. ported labour costs than the other producer countries, who also
Looking at the dynamic components of Eq. (8), between 20 0 0 engaged in a consistent intensification of offshoring.
j
As to the domestic segment of the supply chain and labour
and 2014 the distributive component - ln( i
)- shows a gener-
Wi
j costs mitigation, Table 1 shows that the annual average growth
alised shift in favour of profits in the imported component of the rate of German domestic wages is only slightly below that of the
supply chain. As for the domestic segment, France and Italy record other producers. This is because German wage moderation was
present in the automotive subsystem, but it was less pronounced
8
than in the rest of the economy. Between 20 0 0 and 20 07,  ln wr
For a discussion of this point, see Steedman (1992).

413
M. Fana and D. Villani Structural Change and Economic Dynamics 62 (2022) 407–419

Table 1
Decomposition of the dynamics of value added per unit of employment.

Domestic inputs Imported inputs

r r t t
Yr Yt
 ln wri +  ln( W ir ) i
Yir
=  ln( Lir )  ln wti +  ln( W it ) i
Yit
 ln( Lit )
i i i i

2000 to 2014
DEU 0.24 0.45 0.31 0.38 0.34 0.11 0.47 0.39
FRA 0.38 -0.41 0.37 0.23 0.25 0.17 0.47 0.33
GBR 0.29 0.04 0.27 0.30 0.37 0.09 0.49 0.42
ITA 0.26 -0.26 0.42 0.15 0.41 0.12 0.51 0.47
2000 to 2007
DEU 0.13 0.48 0.31 0.28 0.10 0.16 0.47 0.17
FRA 0.18 -0.12 0.37 0.13 -0.07 0.21 0.47 0.03
GBR 0.13 -0.35 0.27 0.04 0.04 0.17 0.49 0.13
ITA 0.16 -0.02 0.42 0.15 0.04 0.17 0.51 0.13
2007 to 2014
DEU 0.11 -0.02 0.42 0.10 0.25 -0.06 0.52 0.22
FRA 0.20 -0.30 0.35 0.10 0.32 -0.04 0.52 0.30
GBR 0.16 0.39 0.21 0.24 0.33 -0.08 0.54 0.29
ITA 0.10 -0.23 0.41 0.00 0.36 -0.05 0.56 0.33

Source: Authors’ elaboration using WIOD and Trade-SCAN data.

Notes: Each value corresponds to one component on the right-hand side of Eq. (7). For example, for FRA,
0.38 is the change in the domestic money wage rate between 20 0 0 and 2014, -0.41 is the change in the
domestic distributive dynamics during the same period and 0.37 is the domestic profit share at the beginning
of the period (20 0 0). The growth rate of the domestic value added per worker between 20 0 0 and 2014 is
0.30. The corresponding values for the imported component of the French automotive supply chain during
the same period are 0.25, 0.17, 0.47 and 0.33.

Table 2 labour costs is lower than in low-tech industries (Gräbner et al.,

Value added and wage per unit of employment by producer
2020; Storm and Naastepad, 2015). As an illustrative example of
country. Thousands of US$.
the different technological capabilities, it is helpful to highlight
Value added per unit of employment that, in 2015, the German automotive sector alone was responsi-
Domestic Imported ble for 27% of all European robots in manufacturing (Fernández-
20 0 0 2007 2014 20 0 0 2007 2014
Macías et al., 2021). Hence, it seems plausible that non-cost fac-
tors are crucial to explaining the success of the German automo-
DEU 58.2 78.7 87.5 20.1 23.4 28.8
tive supply chain. This argument is in line with the evidence that
FRA 56.7 64.9 72.6 20.4 20.7 27.6
GBR 59.3 62.4 80.3 18.0 20.1 26.3 shows that the growth in the physical productivity of the German
ITA 52.6 61.0 61.6 16.1 17.8 24.3 economy has been the highest among the four producer coun-
tries (Wirkierman, 2021). Within this context, productivity gains
Wage per unit of employment
could have allowed wages to increase more than they did. How-
Domestic Imported
ever, productivity gains only partly translated into higher wages
2000 2007 2014 2000 2007 2014 and/or lower prices, but “were … used to increase profit mar-
DEU 40.2 45.7 51.2 10.9 12.1 15.2 gins” (Bundesbank, 2011, p. 33 in Bosch and Lehndorff, 2019). This
FRA 35.5 42.4 52.0 11.4 10.7 14.5 swelling of profits is also reflected in the previously mentioned
GBR 43.4 49.5 58.1 9.6 10.1 13.8 growth in the German domestic profit share, which is the highest
ITA 30.6 35.8 39.6 8.5 8.8 12.4 recorded in Table 1.
Source: Authors’ elaboration using WIOD and Trade-SCAN data. Finally, we should not forget the role played by institutional
elements concerning the strategy pursued by the main carmak-
ers in the four producer countries. This is especially relevant in
a very concentrated industry such as the automotive one, where
for the whole economy was 0.03 while it was 0.13 for the automo-
the decisions of a few carmakers can be a determinant factor in
tive subsystem (estimations based on the Socio-Economic Accounts
explaining the aggregate trends of final output. In this respect,
of WIOD). Thus, these figures suggest that labour cost reductions
significant differences between countries emerge. While the four
(domestic and imported) did not operate extensively in the Ger-
countries intensified their offshoring strategies to a large extent,
man automotive supply chain as they did in other industries. Over-
the French and Italian brands largely dismissed their productive
all, considering the role of imported employment in Germany and
capacity, as highlighted in the literature (e.g., Balcet and Ietto-
in the other three producer countries and the (not so strong) mit-
Gillies, 2020; Chiappini, 2012). Unlike these two countries, Ger-
igation of wages in the automotive supply chain, it does not seem
man carmakers mainly offshored the production of intermediate
possible to draw an unambiguous link between wage compression
components, while they kept the final assembly domestic, as well
and performance of total output across the four producer coun-
as other key stages of production (e.g., R&D) (Simonazzi et al.,
tries.
2020). As Celi et al., (2018, p. 90) put it, the offshoring strate-
These considerations leave the door open to alternative inter-
gies put in place by Germany, France (and Italy) are radically dif-
pretations of the German success. As some authors have argued
ferent. In the German case, the share of cars produced domesti-
(e.g. Simonazzi et al., 2013; Vermeiren, 2017), non-cost elements,
cally in total production … remains much more stable than is the
such as technical change and the low price elasticity of demand
case for the other countries. The decline of the Italian share (due
for German exports compared to other European countries, played
to the outsourcing strategy pursued by Fiat) precedes the decline
a pivotal role in determining the German performance. This is es-
of the French share, to finally converge with it. … This suggests
pecially valid in high-tech sectors, where the sensitivity to unit

414
M. Fana and D. Villani
that the offshoring strategies adopted by the automotive firms in
the [three] countries can play a role in explaining the different
performance.
Moreover, it is reasonable to argue that, in the context of the
general dismantling of productive capacity, the main carmakers in
these countries have reduced their efforts to enhance productivity
growth that could have boosted their competitiveness, contrary to
what happened in Germany. Within this context, the UK represents
a peculiar case. Unlike the other three producers, UK automotive
final production is not composed exclusively of domestic brands,
but hosts several foreign companies (Holweg et al., 2009).9 Even
though the UK is the country with the highest domestic wages
per capita, it has a unique mix of producers and has managed to
keep the same levels of final output since the beginning of the
century.
4.3. Occupational composition analysis
This section tackles our second research objective, the analysis
of the evolution of the occupational structures of the imported and
domestic employment involved in the automotive supply chain,
following the methodology described in Section 3. One limitation
of this analysis is that it is restricted to the domestic and Euro-
pean component of the supply chain, due to the lack of occupa-
tional data for China and ROW.10 This is an important limitation
that impedes a generalisation of the results. Nevertheless, we be-
lieve that this analysis provides relevant insights into the charac-
teristics of the occupational structure and its evolution. This is also
more relevant because the automotive supply chain became more
European-centred between 20 0 0 and 2014. If we also consider the
domestic component of the supply chain, the occupational decom-
position covers most11 of the labour force involved in the automo-
tive supply chain.
To evaluate the patterns of employment composition, we first
compute the participation of each occupation in total employment
(domestic and imported) involved in the automotive supply chain
of the four countries considered. This procedure enables us to
compare the occupational structure in each region contributing to
the subsystem. The results of this decomposition are reported in
the top panel of Table 3.
The first aspect to note is that the employment involved in
the supply chain is largely concentrated in three groups of oc-
cupations: managers and professionals, clerks and sales workers
and manual workers. In all producers and regions, we witness a
marked increase in the participation of top (managers and profes-
sionals) and middle level occupations (sales workers).12 The other
side of the coin is represented by the reduction in the share of
manual workers, whose participation decreases in all regions.
The absolute shares for occupations provide an initial hint
about the occupational structure but do not provide an accurate
description of the inter-country division of labour contributing to
9
Merges and acquisitions and relocations of the headquarters of automobile
companies make it increasingly difficult to establish the nationality of carmakers.
For simplicity, we can think of “domestic” brands as those historically born in the
producer countries.
10
Unlike LFS, ILOSTAT offers occupational data for extra-European countries. How-
ever, data from ILOSTAT are provided at a lower level of disaggregation in terms of
industries compared to WIOD tables. This misalignment would strongly affect the
analysis and its reliability. Moreover, the availability of occupational data is often
very limited for extra-European countries, which would affect the coverage of the
analysis. Since these two aspects would heavily affect the analysis, we decided to
limit the study to European countries, where LFS data allow an ideal fit with WIOD
data.
11
In 2014, the share of domestic plus imported employment from European coun-
tries in the four producer countries averaged 61.7% of total employment.
12
The only exception is the case of clerks and sales workers for the domestic
segments of the French and Italian supply chains.
415
Structural Change and Economic Dynamics 62 (2022) 407–419
the value chain. The trends in employment composition in each
region should be evaluated in relation to the changes in the occu-
pational structure that occur within the entire value chain of each
producer. To account for the relative specialisation of professional
groups for each geographical location contributing to a given value
chain, we build an indicator of “occupational revealed comparative
advantage” (ORCA). For each producer, the indicator is computed
as the ratio between the share of an occupational group in each
region over the average share of that occupation in the total (do-
mestic and EU-imported) employment participating in the automo-
tive supply chain. This indicator captures the relative specialisation
of a region in providing employment from that occupational group
to the supply chain. A region is relatively more specialised in pro-
viding employment from a certain occupation when the indicator
takes a value greater than one, while the opposite holds for val-
ues below one. At the same time, this indicator allows us to es-
tablish if there is a relative occupational upgrade during the pe-
riod analysed. We define relative upgrading as being when there
is a reduction in the ORCA indicator for manual workers which is
accompanied by a relative growth of the ORCA for managers and
professionals.
The results derived from this analysis (bottom panel of Table 3)
show that the domestic segment of the supply chain is rela-
tively specialised (ORCA > 1) in the top and middle level occupa-
tions, while the opposite holds for manual workers. On the other
hand, the imported segments of the supply chains are relatively
more specialised in manual occupations. This pattern is more pro-
nounced in EE countries, followed by SE and CE countries. At the
same time, the variability of the ORCA indicator is much higher for
the imported segments of the supply chain than it is for the do-
mestic ones.
Moreover, the results show an evolving scenario. In 2014, the
specialisation pattern depicted in the previous paragraph is more
nuanced than it was in 20 0 0. In fact, while the domestic com-
ponents do not witness a significant shift in the relative occupa-
tional specialisation, there is a generalised reduction in the ORCA
for manual workers from all foreign segments within all supply
chains, except for the case of EE countries providing labour to Ger-
many. Conversely, there is an increase in the ORCA for middle and
top level occupation workers from all regions in all producers. This
growth is especially marked for clerks and sales workers while,
although present in most regions and producers, it is less pro-
nounced for managerial and professional occupations (apart from
Italy, where the imported ORCA for this occupation diminishes
slightly).
Overall, our findings suggest that offshoring practices may still
partly entail the replacement of domestic manual workers by im-
ported ones. However, this pattern is changing in favour of middle
level occupations (i.e., clerks and sales workers) and, to a lesser ex-
tent, managerial and professional occupations. These findings pro-
vide some indications in relation to the RBTC theory, which con-
siders that imported employment is intensive in manual activities.
While the composition of imported employment from the Euro-
pean segments of the automotive supply chain broadly confirms
this prediction, our analysis shows that the intensification of off-
shoring activities (Fig. 2) is accompanied by a relative upgrading
(or, we shall say, a “middling”) of the occupational structure in the
imported segment of the supply chain.13
13
At the same time, we must be aware that this pattern (upgrading and/or “mid-
dling”) cannot be straightforwardly employed as a test for the routinisation hypoth-
esis. To do so, we should explicitly separate the effect of technological progress
from offshoring when assessing the geographical composition of employment par-
ticipating in the value chain.
 M. Fana and D. Villani
Table 3
Occupational composition of the automotive supply chain and revealed comparative advantage of occupations by producer and region.

Share (%) of occupations involved in the automotive supply chain by region and producer

DEU FRA

Domestic CE EE SE Total Domestic CE EE SE Total

20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014 20 0 0 2014

Managers and Prof. 38.2 41.7 35.0 43.9 25.9 28.3 26.6 34.0 37.0 39.8 35.6 43.6 34.1 41.4 24.9 27.8 25.7 32.9 34.7 41.4
Clerks and Sales Work. 20.1 22.9 16.1 20.6 8.9 17.5 17.4 21.6 19.2 22.1 23.5 19.5 15.8 22.7 8.5 18.4 15.9 22.0 22.2 19.9
Skilled Agric. 1.5 1.1 1.4 1.0 5.5 2.3 1.3 1.0 1.7 1.2 3.4 2.6 1.0 0.8 6.4 3.0 1.0 1.1 3.2 2.4
Manual Workers 33.2 26.3 40.3 28.2 52.5 46.5 48.3 37.2 35.1 29.3 30.7 25.4 40.6 28.1 52.8 45.0 50.6 37.9 32.9 28.1
Elementary Occ. 7.1 8.1 7.3 6.4 7.2 5.4 6.5 6.3 7.1 7.6 6.8 8.9 8.6 7.0 7.4 5.8 6.8 6.3 6.9 8.3
GBR ITA

Domestic EE EE SE Total Domestic CE EE SE Total

2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014

Managers and Prof. 39.2 43.0 34.9 41.1 26.3 28.8 25.9 33.5 38.6 41.7 28.5 37.2 35.1 43.1 24.2 27.6 26.0 30.4 28.6 37.0
Clerks and Sales Work. 26.5 23.5 14.8 21.2 9.1 19.3 16.1 22.1 25.5 23.0 26.1 23.9 15.5 21.9 8.9 17.6 13.2 23.9 25.4 23.5
Skilled Agric. 0.7 1.0 1.5 1.0 5.0 2.6 1.3 1.0 0.8 1.1 2.4 1.8 2.1 1.1 6.4 3.2 2.2 1.9 2.5 1.8
Manual Workers 26.5 24.6 41.8 30.5 52.4 43.9 50.0 37.4 28.0 26.6 35.6 27.0 40.4 27.7 52.9 45.3 49.5 37.4 36.2 27.9
Elementary Occ. 7.1 8.0 7.0 6.3 7.2 5.5 6.7 6.1 7.1 7.6 7.4 10.1 6.9 6.2 7.6 6.3 9.1 6.4 7.4 9.7
Occupational revealed comparative advantage (ORCA)
416

DEU FRA

Domestic CE EE SE Total Domestic CE EE SE Total

2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014

Managers and Prof. 1.03 1.05 0.95 1.10 0.70 0.71 0.72 0.85 1 1 1.03 1.05 0.98 1.00 0.72 0.67 0.74 0.80 1 1
Clerks and Sales Work. 1.05 1.04 0.84 0.94 0.47 0.79 0.91 0.98 1 1 1.06 0.98 0.71 1.14 0.38 0.93 0.71 1.10 1 1
Skilled Agric. 0.85 0.88 0.82 0.79 3.20 1.94 0.74 0.85 1 1 1.06 1.10 0.30 0.34 1.98 1.26 0.32 0.45 1 1
Manual Workers 0.95 0.90 1.15 0.96 1.50 1.59 1.38 1.27 1 1 0.93 0.91 1.23 1.00 1.61 1.60 1.54 1.35 1 1
Elementary Occ. 1.00 1.07 1.03 0.83 1.02 0.71 0.92 0.82 1 1 0.99 1.07 1.23 0.85 1.07 0.69 0.98 0.75 1 1

Structural Change and Economic Dynamics 62 (2022) 407–419

GBR ITA

Domestic CE EE SE Total Domestic CE EE SE Total

2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014 2000 2014

Managers and Prof. 1.02 1.03 0.90 0.98 0.68 0.69 0.67 0.80 1 1 1.00 1.01 1.23 1.16 0.85 0.75 0.91 0.82 1 1
Clerks and Sales Work. 1.04 1.02 0.58 0.92 0.36 0.84 0.63 0.96 1 1 1.03 1.01 0.61 0.93 0.35 0.75 0.52 1.02 1 1
Skilled Agric. 0.87 0.92 1.75 0.90 5.99 2.49 1.58 0.92 1 1 0.98 0.98 0.85 0.61 2.60 1.77 0.91 1.03 1 1
Manual Workers 0.95 0.93 1.49 1.15 1.87 1.65 1.79 1.41 1 1 0.98 0.97 1.12 0.99 1.46 1.62 1.37 1.34 1 1
Elementary Occ. 1.00 1.04 1.00 0.82 1.02 0.72 0.95 0.80 1 1 1.00 1.04 0.93 0.64 1.03 0.65 1.23 0.66 1 1

Source: Authors’ elaboration using WIOD and Trade-SCAN data. Note: CE, EE, SE refers to the imported employment from these regions.
Notes: The value at the intersection of row “Managers and Prof.” and column “CE”/“20 0 0” (for DEU) indicates that, in 20 0 0, 35% of the imported employment from CE countries and participating in the
German supply chain proceeds from “Managers and Prof.” occupations. The corresponding ORCA indicator is equal to 0.95 for the year 20 0 0, which indicates that CE countries are relatively less specialised
(although slightly) in the provision of Managerial and Professional occupations to the German automotive supply chain. This indicator takes a value of 1.10 in 2014, denoting that CE have become relatively
specialised in the provision of this type of occupation to the Germany supply chain.
M. Fana and D. Villani
5. Conclusions
This paper studied the supply chain in the automotive indus-
try of four European countries. In line with the existing research
(Chiappini, 2012; Garbellini, 2014; Timmer et al., 2015), our re-
search highlights the relevance of the imported component in-
volved in the supply chain which constitutes a sizeable portion of
total inputs. At the same time, other elements, which have usu-
ally been overlooked by the literature, emerge from the analysis
of the geographical composition of the supply chain. The tendency
to offshore activities changed after the global financial crisis, both
in absolute terms and in respect to the geographical composition
of the supply chain. After 2007, the participation of non-European
countries reduced, while the share of production originating in Eu-
rope became more significant. EE countries are among the regions
whose presence increased more noticeably. It is necessary to be
cautious, however, when emphasising the role played by this re-
gion. The participation of EE countries is especially marked in the
German and to some extent in the Italian supply chains, while it
is less relevant for the French and British ones. In this respect, it
is worth noting the role played by CE countries, which continue to
be an important source for the supply of employment.
The reshaping of the value chain takes place in very different
industrial contexts. In France and Italy, the process of offshoring is
accompanied by the dismissal of their production capacities, while
Germany and — although with substantial difference in terms of
magnitude — the UK keep consolidating it. This implies that no
direct relationship can be drawn between the intensity of the pro-
cess of offshoring and economic performance. Offshoring can be
functional to the consolidation of the industry’s output or be ac-
companied by the dismantling of productive capacity.
The paper also analysed the evolution of the ratio of domestic
and imported value added per unit of employment in the automo-
tive supply chain. We performed a structural accounting decom-
position of the evolution of the ratio of value added per worker
into two components, the unitary wage and the functional income
distribution component, and we discussed this decomposition in
relation to the Kaleckian pricing theory. Unlike most of the anal-
yses developed within this framework that are based on direct
costs, we accounted for the domestic and imported value added
per worker from a vertically integrated perspective, which allows
us to account for the direct and indirect relations of production
along all the stages of production.
This decomposition permitted us to argue that wage mitigation
(domestic and imported) does not look like the key determinant
of the German success in the automotive industry. The difference
in performance seems to be determined mostly by non-cost fac-
tors. Coherent with the arguments proposed by other authors (e.g.,
Simonazzi et al., 2013), technological advancements are crucial in
explaining the evolution of output. A second relevant element re-
lates to the different strategies pursued by the carmakers in the
four producer countries. In the context of a highly oligopolistic
market, the decision of dominant firms to dismantle their domestic
final production has a considerable impact on the determination of
the general trends in the industry. This type of strategy has been
central to the reduction of final output in France and Italy.
An additional consideration that emerges from this analysis is
that the imported value added and wages per unit of employment
increased faster than the domestic one. This may be an important
aspect in the future in the determination of offshoring strategies.
Although the difference in wage levels between the domestic and
imported component is still considerable, the reduction in wage
differentials indicates an erosion of the competitive advantage de-
rived from lower labour costs. These findings could offer some in-
sights to the “smile curve” literature (Stöllinger, 2021), which ar-
gues that the offshored part of the supply chain is concentrated in
417
Structural Change and Economic Dynamics 62 (2022) 407–419
low value added activities, while the pre- and post-production ac-
tivities are localised in the domestic (high value added) segments.
Even though it is true that the imported employment embodies on
average lower value added, the reduction in the gap between do-
mestic and imported value added may lead to less “smiling” (i.e.,
flatter) curves. In this respect, future studies could explore in more
detail the evolution of the smile curve across different countries
and subsystems.
The second main contribution of this paper regards the de-
composition of the employment involved in the automotive supply
chain according to its occupational structure. This represents an in-
novative perspective on the study of the employment composition
of the supply chains, one which shifts the focus from supply-side
characteristics of the labour force (e.g., the skill level) to a demand-
side perspective. This approach is consistent with the recent devel-
opments in the literature (Autor, 2013) according to which what is
ultimately demanded and traded in the labour market are tasks,
not skills. Moreover, this type of analysis complements previous
research on the occupational structure of the automotive supply
chain (Krzywdzinski, 2017, 2021). Unlike these studies, our paper
covers not only direct employment but also the employment acti-
vated in other industries indirectly participating in the automotive
chain.
We developed an occupational revealed comparative advantage
(ORCA) index to study the relative occupational importance of the
employment participating in the automotive supply chain. Two
main conclusions emerge from the decomposition of the occupa-
tional structure. On the one hand, there are persistent differences
in the ORCA of the imported and domestic employment within
each supply chain. Relative specialisation in providing employment
of managers and professionals characterises the domestic employ-
ment structure of all producers. This presence slightly consolidates
over time at the expense of manual workers. At the same time,
the occupational structure of the imported component from all Eu-
ropean regions is characterised by a relative specialisation in pro-
viding employment of manual workers. This result seems to sup-
port the hypothesis that the decline in manual occupations in the
domestic segment of the supply chain is driven by the possibility
of offshoring more routine-intensive occupations in those regions
where the cost of labour is lower. Nevertheless, we should be cau-
tious with this type of conclusion. In fact, our findings exhibit a
reduction in the specialisation in imported Manual workers that
has been compensated by the relative growth of middle and top
level occupations. As the process of offshoring intensifies, the em-
ployment involved in the European automotive value chain shows
a pattern of occupational upgrading and/or “middling”, in line with
recent findings (Hurley et al., 2019). As emphasised above, the oc-
cupational analysis developed in this paper suffers from the lack
of occupational data for extra-European countries. This is an im-
portant limitation to keep in mind before generalising our findings.
Nevertheless, our results are still illustrative of an important seg-
ment of the automotive supply chain. This is even more important
considering that, during the period analysed, the supply chain wit-
nessed an increase in the participation of European countries.
To conclude, our research has discussed several aspects of the
European automotive supply chain. Of course, the research topic
has not been exhausted here. The input-output analysis of the
evolution of wages and profits may motivate other studies that
deal with the costs of production in other industries/countries. The
relationship between offshoring and the international division of
labour continues to be an open and pivotal research question to
be further explored. One possibility would be to dig into the anal-
ysis of the differences in task content and work methods of the
imported employment vis à vis the domestic ones, to assess via
the use of working condition surveys whether there are relevant
differences between the offshored and the domestic employment
M. Fana and D. Villani Structural Change and Economic Dynamics 62 (2022) 407–419

(e.g., whether imported employment is more routinised than do-
mestic in managerial occupations also). This paper has shown that
the intensification of offshoring can be accompanied by a relative
upgrading of the imported labour force. Future research shall try
to determine if and to what extent offshoring enables this process.
CRediT authorship contribution statement
Marta Fana: Conceptualization, Methodology, Formal analysis,
Writing – review & editing. Davide Villani: Conceptualization,
Methodology, Formal analysis, Writing – review & editing.
Acknowledgments
standard statistics of gross trade flows. The terms vi and viii cor-
respond to, respectively, the entirely domestic and entirely foreign
components that are embodied in the final exports from country r
to country s. That is, vi = drsfinal
and viii = frs
final
that are presented
in section 3 of the paper. These estimations differ from most of
input-output studies which usually estimate c and d, i.e. includ-
ing the double counted terms. Although it would be preferrable
to exclude double counting, it should also be acknowledged that
the role played by double counted trade tends to be quite limited
(Los et al., 2016). (Table A1).
Table A1
Country classification.

Region Original WIOD Country/Region

The authors are indebted to Antonio Amores, Iñaki Arto, Gabriel
Core European (CE) countries Austria (AUT)
Brondino and the two anonymous referees. Their comments and
Belgium (BEL)
suggestions have helped to improve this paper considerably. The Switzerland (CHE)
usual disclaimers apply. Germany (DEU)
Denmark (DNK)
Appendix Finland (FIN)
France (FRA)
United Kingdom (GBR)
Following Arto et al., (2019), the vector of final exports yrs can Luxemburg (LUX)
be expressed in terms of value added contributions as: Netherlands (NDL)
  T Norway (NOR)
yrs =  vt Btr yrs , ∀ r = s (A1) Ireland (IRL)
t Sweden (SWE)
China China (CHN)
The total value added in the final exports of country r to coun- Eastern European (EE) countries Bulgaria (BGR)
try s can be further decomposed as: Czech Republic (CZE)
Hungary (HUN)
Slovenia (SVN)
Slovak Republic (SVK)
Poland (POL)
Romania (ROU)
Southern European (SE) countries Spain (ESP)
Greece (GRC)
Italy (ITA)
(A2) Portugal (PRT)
Rest of the World Medium-High Australia (AUS)
Where c is the domestic value added that is embodied in the fi-
Income (ROW-HI) countries Canada (CAN)
nal exports and d is the imported component embodied in final Cyprus (CYP)
exports.14 Estonia (EST)
Finally, it is possible to distinguish the productive chains that Croatia (HRV)
are entirely domestic from those that have passed at least once Japan (JPN)
South Korea (KOR)
from a foreign country. Similarly, it is possible to distinguish be-
Lithuania (LTU)
tween those chains whose value added that is exclusively foreign Latvia (LVA)
and from those that have passed through country r (the domestic Malta (MLT)
country) at least once. Russia (RUS)
Taiwan (TWN)
USA (USA)
Rest of the World Medium-Low Brazil (BRA)
Income (ROW-LI) countries India (IND)
Indonesia (IDN)
Mexico (MEX)
Turkey (TUR)
Rest of the World (ROW)

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