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Ownership Characteristics, Real Exchange Rate Movements and Labor Market Adjustment in China

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  • Risheng Mao
  • John Whalley

Abstract

This paper uses a firm level multi-industry data set covering 456 Chinese manufacturing sectors to assess the implications of Renminbi (RMB) real exchange rate appreciation for adjustments in employment and wage rates. We stress differences in both industry and firm characteristics within sectors. Our empirical results show that modest (and also larger) RMB real exchange rate appreciation would likely have pronounced effects on both net employment and wage rates. A 10% RMB appreciation would likely cause a net employment decline in Chinese manufacturing industries of between 4.1% and 5.3%, and a wage rate drop of 4% after controlling for other factors. Real exchange rate change effects by industry on net employment and wage rates vary significantly with the ownership characteristics of firms within industries. Employment and wage rates for private enterprises are less responsive to RMB real exchange rate fluctuations than is true for state owned enterprises (SOEs) and foreign invested enterprises (FIEs). This finding is opposite to the widely held belief that the labor market behavior of Chinese SOEs shows stronger labor market rigidities than for private firms. Impacts of exchange rate movements emerge as systematically related to export openness, overall import penetration and profit margins of individual manufacturing industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17565.

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Date of creation: Nov 2011
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Handle: RePEc:nbr:nberwo:17565

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  1. Klein, Michael W. & Schuh, Scott & Triest, Robert K., 2003. "Job creation, job destruction, and the real exchange rate," Journal of International Economics, Elsevier, vol. 59(2), pages 239-265, March.
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  8. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  9. Linda Goldberg & Joseph Tracy, 2001. "Exchange rates and wages," Staff Reports 116, Federal Reserve Bank of New York.
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