Unequal exchange of labour in the world economy

The study investigates whether and to what extent wealthy countries in the global North rely on net appropriation of labour from the global South through unequal exchange in international trade and global supply chains. Building on world-systems and unequal exchange theories, the authors examine how power asymmetries and policies such as structural adjustment have compressed Southern wages and prices, potentially compelling higher exports of embodied labour and resources to the North. The purpose is to measure embodied labour flows between North and South from 1995 to 2021, disaggregated by skill level and sector, and to quantify the wage value of net-appropriated labour while explicitly addressing whether observed wage gaps and unequal exchange reflect differences in skill composition or sectors. The study is significant for understanding the foundations of Northern consumption and growth, the constraints on Southern development, and the implications for global inequality.

Prior scholarship in international political economy posits that value transfer from the periphery to the core underpins Northern accumulation, with unequal exchange identified as a key mechanism. Literature documents how core-based states and firms exert power to suppress wages and prices in the South, including via structural adjustment programs that devalued currencies, cut public jobs, deregulated labour and environment protections, and oriented economies toward export-led growth in subordinate positions within global commodity chains. Earlier empirical efforts quantified unequal exchange by adjusting monetary trade for wage or price disparities, or by using EEMRIO models to track embodied resources. However, these studies did not directly analyze price dynamics associated with labour time in North–South trade, nor disentangle whether wage disparities and unequal exchange are due to differences in skill levels or sectoral mixes. This study addresses those gaps by accounting for sectors, wages, and ILO-defined skill levels in embodied labour flows.

The authors use environmentally extended multi-regional input–output (EEMRIO) analysis with EXIOBASE v3.8 (200 product sectors; 44 individual countries plus 5 aggregated regions; 1995–2021). The Leontief demand-driven framework X = (I – A)^{-1} y (L = (I – A)^{-1}) is applied, combining MRIO monetary tables with socioeconomic extensions for labour time (hours) and labour compensation (constant 2005 EUR at market exchange rates). Labour intensities (q) are multiplied through the supply chain via F = q̂ L y to obtain embodied labour flows by source sector and country for each destination’s final demand. The study: - Aggregates sectors into five groups (agriculture, mining, manufacturing, services, other) following EXIOBASE concordances; - Uses ILO skill levels (low, medium, high) based on ISCO occupational and education categories; - Defines North as an approximation of IMF advanced economies given EXIOBASE country coverage; the South includes all others, noting some small advanced economies are included in regional aggregates categorized as South; - Computes embodied labour exports and imports between North and South, net appropriation (South-to-North minus North-to-South), and North’s total consumption of labour (domestic, North–North, and balanced South exchange plus net-appropriated flows); - Calculates regional wages (EUR/hour) as total compensation for exports divided by exported labour hours; - Values the wage-equivalent of net-appropriated labour by multiplying net-appropriated hours in each skill category by the corresponding Northern wage for that skill involved in traded goods (and in a robustness check, by Northern wages by skill within each sector); - Derives workers, total hours, and hours per worker from EXIOBASE labour accounts; - Uses MER rather than PPP to reflect command over the global product. Limitations noted include EXIOBASE now-casting from 2011, regional aggregation that underrepresents South–South intra-regional trade, and classification approximations for North/South.

• Global production labour in 2021 totaled 9.6 trillion hours; the global South contributed 90% overall and the majority across skills: 76% of high-skilled, 91% of medium-skilled, and 96% of low-skilled labour. For traded goods (2.1 trillion hours), the South contributed 91% (73% high-skilled, 93% medium-skilled, 96% low-skilled). The South provided most labour across sectors: agriculture 99%, mining 99%, manufacturing 93%, services 80%, other 89%. - Despite providing 90–91% of global production labour, the South received 44% of global income in 2021; Southern workers received only 21% of global income. - Employment and labour hours rose 1995–2021 in both regions, more so in the South. Hours per worker: North fell from 1895 to 1770 (−7%), South rose from 2216 to 2236 (+1%). In 2021, Southern workers worked on average 466 more hours (+26%). - Unequal exchange: In 2021 the North imported 906 billion hours of embodied labour from the South and exported 80 billion hours in return (≈11:1). On average across 1995–2021, the North imported ≈15 times more Southern labour than it exported. By skill, the North imported ≈4x more high-skilled, 17x more medium-skilled, and 29x more low-skilled labour from the South than it exported. - Sectorally, the North net-imported labour from the South across all five sectors: ≈120x agriculture, 110x mining, 11x manufacturing, 6x services; the North did not net-export labour in any sector. - Time series: The South–North exchange ratio worsened from ≈17:1 (1995–1997) to ≈21:1 (2003–2005), then improved to ≈10:1 (2005–2015), driven largely by China, with stalling and some regression after 2015. - Net appropriation volume peaked around 2005, declined during 2005–2015, then rose; in 2021, net-appropriated labour reached 826 billion hours. Net flows from China account for roughly one-sixth of South-to-North net flows. - North’s consumption: Net-appropriated labour comprised 46% of the North’s total labour consumption in 2021; the North consumes roughly twice as much labour as it renders. Northern economies have become highly reliant on low-skilled labour, 71% of which (consumed in the North) is net-appropriated from the South. The North net-appropriated 52 billion hours of high-skilled labour in 2021, exceeding high-skilled labour obtained via North–North trade (31 billion hours). - Wage valuation: The wage value of net-appropriated labour was €16.9 trillion in 2021 (Northern wages by skill; traded goods), more than double the level in 1995. Cumulative 1995–2021 drain sums to €310 trillion. Robustness using Northern wages by skill and sector yields €14.2 trillion in 2021. - Wage gaps: Southern wages are 87% lower (high-skilled), 93% lower (medium), and 95% lower (low) than Northern wages for equal skill in traded-goods production. High-skilled South wages are 68% lower than low-skilled North wages. Northern workers consume 8–19 times more of the global product per hour at the same skill level. Average Southern wage rose from €0.46 to €1.62; Northern from €12.60 to €24.95; absolute Northern gains exceeded Southern gains ≈11-fold. Sectoral gaps persist: agriculture 85–91% lower, mining 93–98% lower, manufacturing 89–94% lower, services 83–90% lower for equal skill. Average Southern wage was 94% lower than Northern in 2021 (improved from 96% in 1995), with improvements mostly 2005–2015 and stagnation thereafter. - Labour share of GDP: Global labour share averaged 51.6% in 2017–2021, down from 54.7% in 1995–1999. Southern labour share averaged 47.5% (2017–2021) vs Northern 54.7%, with declines in both regions over the period.

Findings provide direct empirical evidence that Northern economies are sustained by large net transfers of embodied labour from the South across all skill levels and sectors, equivalent to nearly half of Northern labour consumption in 2021. This dynamic effectively doubles the labour available to Northern consumption and growth, illustrating that the Northern development model is not universalizable under fair trade conditions. The South loses 9–16% of its productive capacity annually to unequal exchange, constraining capacity to meet local needs such as housing, health, education, and food. Wage gaps are extreme and persistent across skills and sectors; the analysis shows they cannot be explained by sectoral composition or skill mix. While physical productivity differences are often invoked, the study argues they are unlikely to account for the observed magnitude of wage gaps and net transfers, given modern production techniques, high labour intensity, and the profitability of using labour-intensive methods where wages are suppressed. Policy implications include the need to reduce price inequalities (e.g., via international wage floors and minimum resource prices), end structural adjustment conditions that restrict sovereign development, and democratize global economic governance to enable the South to reclaim productive capacity and reduce dependency on Northern capital.

The paper contributes a comprehensive, skill- and sector-resolved EEMRIO assessment of embodied labour flows between North and South from 1995–2021, demonstrating substantial unequal exchange: 826 billion net-appropriated hours in 2021, worth €16.9 trillion at Northern wages, alongside widening absolute wage gaps and declining labour shares. It shows that North–South wage inequalities and unequal exchange persist within all skill levels and sectors, and that Northern consumption is heavily reliant on net-appropriated Southern labour, including high-skilled labour. Future research directions include finer regional disaggregation (e.g., periphery vs semi-periphery), analysis of within-country class dynamics and internal peripheries, incorporation of gender and unpaid social reproduction into EEMRIO accounts, and improved methods to compare physical productivity across comparable industries. Policy pathways suggested involve international wage floors, fairer resource pricing, ending conditionalities on finance, and reforming governance to enable sovereign development in the global South.

• EXIOBASE uses now-casting for years after 2011, introducing uncertainty though major structural breaks are not expected. - Regional aggregation: many global South countries are grouped, and intra-regional South–South trade is not represented, likely underestimating Southern contributions to traded-goods production and affecting net flow estimates. - North/South classification is approximate due to EXIOBASE coverage; some small IMF advanced economies are included in aggregated regions assigned to the South, likely making Southern wages slightly higher and labour drain slightly lower than if perfectly matched. - Wage valuation reflects prevailing Northern wages and market exchange rates; while appropriate for assessing command over the global product, monetary values do not represent a “true” value of labour. - Sector-weighted wage valuation is sensitive to large intra-North sectoral wage disparities (e.g., very low agricultural wages). - The study does not directly measure physical productivity differences across identical tasks and products; standard GDP-based productivity metrics are price-based and unsuitable for explaining unequal exchange in this context. - EEMRIO’s core–periphery framing may obscure heterogeneity within the South (e.g., periphery vs semi-periphery) and within-country inequalities; gendered unpaid labour and social reproduction are not included.