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Exchange Rates and Wages in an Integrated World

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  • Mr. Antonio Spilimbergo
  • Ms. Prachi Mishra

Abstract

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

Suggested Citation

  • Mr. Antonio Spilimbergo & Ms. Prachi Mishra, 2009. "Exchange Rates and Wages in an Integrated World," IMF Working Papers 2009/044, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/044
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    References listed on IDEAS

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    Cited by:

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    2. Christian Dustmann & Hyejin Ku & Tetyana Surovtseva, 2023. "Real Exchange Rates and the Earnings of Immigrants," The Economic Journal, Royal Economic Society, vol. 134(657), pages 271-294.
    3. Hjort, Jonas & Li, Xuan & Sarsons, Heather, 2020. "Across-Country Wage Compression in Multinationals," CEPR Discussion Papers 14465, C.E.P.R. Discussion Papers.
    4. Joseph S Shapiro, 2021. "The Environmental Bias of Trade Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 831-886.
    5. Nguyen, Ha Trong & Duncan, Alan S, 2017. "Exchange rate fluctuations and immigrants' labour market outcomes: New evidence from Australian household panel data," Journal of International Economics, Elsevier, vol. 105(C), pages 174-186.
    6. Andini, Corrado, 2023. "Exchange-rate policy, institutions and wages: A macroeconomic quasi-experiment from Italy, 1997–2000," International Economics, Elsevier, vol. 175(C), pages 158-170.
    7. Ouyang, Alice Y. & Paul, Saumik, 2018. "The effect of skilled emigration on real exchange rates through the wage channel," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 139-153.
    8. Cabral, René & Mollick, André Varella, 2017. "Mexican real wages and the U.S. economy," Economic Modelling, Elsevier, vol. 64(C), pages 141-152.
    9. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares," Working Papers 2020-15, Becker Friedman Institute for Research In Economics.
    10. Navarro, Lucas, 2009. "Employment dynamics and crises in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    11. Lewis, John & Swannell, Matt, 2018. "The macroeconomic determinants of migration," Bank of England working papers 729, Bank of England.

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    More about this item

    Keywords

    WP; pay; unemployment rate; Migration; exchange rates; labor market integration; wage data; reservation wage; exchange rate movement; wages of immigrant; emigration rate; wage rate; Wages; Real exchange rates; Labor markets; Middle East; Eastern Europe; Europe;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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