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Exchange Rate, Employment and Hours: What Firm-Level Data Say

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  • Pozzolo, Alberto Franco

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  • Nucci, Francesco

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Abstract

Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on the firm's exposure to foreign sales and its reliance on imported inputs. Further, we show that, for given international orientation, the response to exchange rate fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specificity in the employment sensitivity to exchange rate swings. Further, wage adjustments are also shown to provide a channel through which firms react to currency shocks. Finally, gross job flows within the firm are found to depend on exchange rate fluctuations, although the effect on job creation is predominant.

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File URL: http://web.unimol.it/progetti/repec/mol/ecsdps/ESDP08049.pdf
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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp08049.

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Length: 39 pages
Date of creation: 13 Oct 2008
Date of revision:
Handle: RePEc:mol:ecsdps:esdp08049

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Keywords: Employment; Exchange Rate; Firm's Foreign Exposure;

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References

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  1. Michael W. Klein & Scott Schuh & Robert K. Triest, 1999. "Job creation, job destruction, and the real exchange rate," Working Papers 99-11, Federal Reserve Bank of Boston.
  2. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222 National Bureau of Economic Research, Inc.
  3. Jose Campa & Linda S. Goldberg, 1995. "Investment, Pass-Through and Exchange Rates: A Cross-Country Comparison," NBER Working Papers 5139, National Bureau of Economic Research, Inc.
  4. Linda Goldberg & Joseph Tracy, 2000. "Exchange Rates and Local Labor Markets," NBER Chapters, in: The Impact of International Trade on Wages, pages 269-307 National Bureau of Economic Research, Inc.
  5. Jiawen Yang, 1997. "Exchange Rate Pass-Through In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 95-104, February.
  6. Nucci, Francesco & Pozzolo, Alberto F., 2001. "Investment and the exchange rate: An analysis with firm-level panel data," European Economic Review, Elsevier, vol. 45(2), pages 259-283, February.
  7. Michael W. Klein & Scott Schuh & Robert K. Triest, 2002. "Job creation, job destruction, and international competition: a literature review," Working Papers 02-7, Federal Reserve Bank of Boston.
  8. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  9. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
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Citations

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Cited by:
  1. Francesco Nucci & Alberto Franco Pozzolo, 2012. "Exchange Rate, External Orientation of Firms and Wage Adjustment," Working Papers CASMEF 1208, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  2. A. Lo Turco & D. Maggioni & M. Picchio, 2012. "Offshoring and Job Stability: Evidence from Italian Manufacturing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/817, Ghent University, Faculty of Economics and Business Administration.
  3. Garcia-Jimenez, Carlos I. & Mishra, Ashok K., 2010. "The Effects of Public Debt on Labor Demand in the United States," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56361, Southern Agricultural Economics Association.
  4. Gabriela López Noria, 2011. "The Effect of Trade and FDI on Inter-industry Wage Differentials: The Case of Mexico," Working Papers 2011-10, Banco de México.

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