Open Access

Torben Dall Schmidt, Timo Mitze

• Offshoring and backshoring are essential components of firms’ internationalization strategies and influence the spatial organization of global value chains (GVCs). This paper examines how such strategies affect the wage development of incumbent workers in multinational firms across urban and rural labor markets. First, we develop a theoretical framework that extends standard urban wage models by incorporating GVC-induced productivity and cost effects, yielding spatially differentiated wage responses to firms’ strategic choices. Second, we empirically estimate the relationship between wage dynamics and GVC reorganization combining data on offshoring and backshoring activities by Danish firms with linked employer-employee register data for the period 2001–2016. Methodically, we apply a difference-in-difference type treatment model withOffshoring and backshoring are essential components of firms’ internationalization strategies and influence the spatial organization of global value chains (GVCs). This paper examines how such strategies affect the wage development of incumbent workers in multinational firms across urban and rural labor markets. First, we develop a theoretical framework that extends standard urban wage models by incorporating GVC-induced productivity and cost effects, yielding spatially differentiated wage responses to firms’ strategic choices. Second, we empirically estimate the relationship between wage dynamics and GVC reorganization combining data on offshoring and backshoring activities by Danish firms with linked employer-employee register data for the period 2001–2016. Methodically, we apply a difference-in-difference type treatment model with internationalization strategies as treatment variables. The results show GVC-related wage growth heterogeneity across space. Offshoring raises wage growth by 2.4 % in urban areas but by roughly 30 % in rural areas relative to average wage growth of incumbent workers in non-internationalizing firms. In contrast, backshoring increases wage growth vis-à-vis comparison workers by 10 % in urban areas compared to 1.5 % in rural areas. Together with the theoretical model predictions, these findings indicate that cost-driven gains from offshoring accrue disproportionately to peripheral regions, while productivity gains from recombining production stages through backshoring are concentrated in dense urban environments, where agglomeration economies and knowledge spillovers amplify returns.…