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The rise of intangible income (Chen et al.)

The rise of intangible income: A global value chain perspective by Wen Chen, Bart Los and Marcel Timmer published by VOXEU (12/2018).


“Intangibles are on the rise, yet their measurement is elusive. This column argues that a global value chain perspective on factor incomes provides new insights. It documents a rapid increase in the share of ‘factorless’ income in global value chains in the 2000s and argues that this period should be seen as an exceptional period in the global economy during which multinational firms benefitted from reduced labour costs through offshoring, while capitalising on firm-specific intangibles at little marginal cost.

The long-run decline in the income share of labour in GDP is one of the most debated macroeconomic trends in recent years. The trend is widely shared across industries and countries (Dao et al. 2017). At the same time, ‘factorless income’ is on the rise. This is the residual that remains after subtracting measured payments to labour and imputed cost of capital from GDP (Karabarbounis and Neiman 2018). Some interpret this trend as an increase in economic profits (Barkai 2017). Others stress that it reflects the increased importance of intangible capital that is currently unmeasured in national accounts statistics (Corrado et al. 2005, Haskel and Westlake 2017).

The need for a global value chain perspective

So far, the discussion on factor incomes is around shares in GDP of single countries. In a recent paper (Chen et al. 2018) we argue for the need for a multi-country approach. In today’s world, goods are typically produced and distributed in intricate networks with multiple stages of production, referred to as global value chain (GVC) production. So-called factory-free goods producers like Apple provide an iconic example. They sell and organise the production of manufacturing goods without being engaged in the actual fabrication process (Bernard and Fort 2015, Fontagné and Harrison 2017). They provide software and designs, market knowledge, intellectual property, systems integration and cost management, as well as a strong brand name. Yet, we have no way to infer the income that accrues to these ‘intangibles’ in national accounts statistics as their use cannot be uniquely attributed to a geographically location. In contrast, tangible assets (such as machinery) and labour have a physical presence and their use is recorded in the national account statistics of the countries where they are located.1 There is thus a need to complement factor income studies at the country level by study of factor incomes in global value chains that cross borders…”

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