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Manufacturing employment and exchange rates in the Portuguese economy: the role of openness, technology and labour market rigidity

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Author Info

  • Fernando Alexandre

    ()
    (University of Minho and NIPE)

  • Pedro Bação

    ()
    (University of Coimbra and GEMF)

  • João Cerejeira

    ()
    (University of Minho and NIPE)

  • Miguel Portela

    ()
    (University of Minho, NIPE and IZA)

Abstract

Integration into the world economy, specialization in low-technology sectors and labour market rigidity have been singled out as structural features of the Portuguese economy that are crucial for the understanding of its performance. In this paper, we explore empirically the role of openness, technology and labour market rigidity in the determination of the effect of the exchange rate on the dynamics of employment in Portugal. Our estimates indicate that employment in low-technology sectors with a high degree of trade openness and facing less rigidity in the labour market is more sensitive to movements in exchange rates. Therefore, our results provide additional evidence on the relevance of those structural features for explaining the evolution of the Portuguese economy in the last decades. In this paper the degree of labour market rigidity is measured at the sector level by means of a novel index. According to this index, high-technology sectors face less labour market rigidity. These sectors are also more exposed to international competition. However, the bulk of employment destruction has occurred in low-technology sectors. This suggests that productivity/technology may be the key variable to reduce the economy's exposure to external shocks.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2010-23.

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Length: 61 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:gmf:wpaper:2010-23

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Keywords: exchange rates; international trade; job flows; labour market rigidity; technology;

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References

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Cited by:
  1. João Carlos Lopes & Paula Cristina Albuquerque, 2012. "The characteristics and regional distribution of older workers in Portugal," Working Papers Department of Economics 2012/22, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Reis, Ricardo, 2013. "The Portuguese Slump and Crash and the Euro Crisis," CEPR Discussion Papers 9591, C.E.P.R. Discussion Papers.

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