workers for which an imputation was made if necessary. Although hours worked would be a preferable measure, these data are not available at a large scale. Labor skill types are classified on the basis of educational attainment levels as defined in the International Standard Classification of Education (ISCED). Low-skilled workers are those with an education level in ISCED categories 1 and 2, mediumskilled in ISCED 3 and 4 and high-skilled in ISCED 5 and 6. Despite international harmonization, comparisons across countries have to be made with care, given the differences in national educational systems. Developments over time in skill-shares can be traced with more confidence.

# **4. European value added in global production of manufactures**

This section summarizes some of the main trends in the distribution of income in global value chains, based on the GVC income concept. In principle many decompositions can be made across the various dimensions offered in the WIOD database such as (groups of) countries, industries, products and factor inputs. In this paper we focus in particular on the position of the European Union as a whole and on developments in each of the 27 nation states that are currently member of the EU. This group of countries is collectively denoted by EU 27 and held constant throughout the paper. The period studied is from 1995 to 2011 which covers two important developments in the integration of the European economy. The fixing of exchange rates in 1999 amongst eleven members of the European Monetary System was leading up to the introduction of the euro in 2002. Increasing trade and investment flows into Eastern Europe in the 1990s culminated in the accession of ten new member states to the European Union in 2004, and another two in 2007. It also contains some major economic shocks to the world economy. The opening up of the Chinese and Indian economies in the 1990s effectively enlarged the global pool of unskilled labour, in particular after China joining the WTO in 2001. And in 2008 the global financial crisis caused a major shock to the world economy which is still reverberating. For most analyses we will therefore compare patterns in 1995 with those in 2008, rather than for a later year, although we will also indicate some preliminary trends until 2011.

In section 4.1 we first establish the widespread pattern of international fragmentation of production. In section 4.2 we analyze trends in the GVC income for the EU 27 countries and find that Europe as a whole was holding up relatively well in the past two decades. But some major shifts within Europe took place, in particular between old and new EU member states. In section 4.3 a revealed comparative advantage (RCA) analysis is carried out based on GVC incomes in particular product groups. We find that differences in competitiveness and RCA between old EU member states based on GVC incomes are different than based on traditional gross export flows. This difference is analyzed more in depth in section 4.4.

# **4.1 International production fragmentation**

In Figure 2 we provide a simple indicator of fragmentation based on the WIOD, using the broad measure of outsourcing from Feenstra and Hanson (1999). This measure is defined as the share of imports in total 17