IDEAS home Printed from https://ideas.repec.org/a/spr/weltar/v156y2020i2d10.1007_s10290-019-00363-0.html
   My bibliography  Save this article

Exchange rate risk and the skill composition of labor

Author

Listed:
  • Richard Friberg

    (Stockholm School of Economics
    Norwegian School of Economics
    CEPR)

  • Mark Sanctuary

    (IVL Swedish Environmental Research Institute
    Stockholm University)

Abstract

This paper uses matched employer–employee data covering the universe of Swedish private sector firms 1998–2014 to examine the links between exchange rate risk and the skill composition of labor in firms. We use firm $$\times$$× export destination and firm $$\times$$× import origin data to calculate firm-level measures of real exchange rate risk and real effective exchange rates. Our main result is that firms facing higher exchange rate risk employ a higher share of skilled labor and that the effect is especially marked among trade intensive firms in manufacturing and in firms with fewer than 50 employees. This finding is consistent with theoretical models of flexible work systems that require higher skill levels as a way of responding to higher risk.

Suggested Citation

  • Richard Friberg & Mark Sanctuary, 2020. "Exchange rate risk and the skill composition of labor," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(2), pages 287-312, May.
    • Handle: RePEc:spr:weltar:v:156:y:2020:i:2:d:10.1007_s10290-019-00363-0
    DOI: 10.1007/s10290-019-00363-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10290-019-00363-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10290-019-00363-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anders Akerman & Ingvil Gaarder & Magne Mogstad, 2015. "The Skill Complementarity of Broadband Internet," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1781-1824.
    2. Alessandro Gavazza, 2011. "Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft," Journal of Political Economy, University of Chicago Press, vol. 119(2), pages 325-377.
    3. Caggese, Andrea & Cuñat, Vicente & Metzger, Daniel, 2019. "Firing the wrong workers: Financing constraints and labor misallocation," Journal of Financial Economics, Elsevier, vol. 133(3), pages 589-607.
    4. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1127-1220, Elsevier.
    5. Phillipe Aghion & Nicholas Bloom & John Van Reenen, 2014. "Incomplete Contracts and the Internal Organization of Firms," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 37-63.
    6. Munch, Jakob Roland & Skaksen, Jan Rose, 2008. "Human capital and wages in exporting firms," Journal of International Economics, Elsevier, vol. 75(2), pages 363-372, July.
    7. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    8. Friberg, Richard, 2001. "Two monies, two markets?: Variability and the option to segment," Journal of International Economics, Elsevier, vol. 55(2), pages 317-327, December.
    9. Clément Malgouyres & Thierry Mayer, 2018. "Exports and labor costs: evidence from a French policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(3), pages 429-454, August.
    10. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    11. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    12. Guy Michaels & Ashwini Natraj & John Van Reenen, 2010. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 Years," CEP Discussion Papers dp0987, Centre for Economic Performance, LSE.
    13. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    14. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    15. Boris Kaiser & Michael Siegenthaler, 2016. "The Skill‐biased Effects of Exchange Rate Fluctuations," Economic Journal, Royal Economic Society, vol. 0(592), pages 756-780, May.
    16. Friberg, Richard & Seiler, Thomas, 2017. "Risk and ambiguity in 10-Ks: An examination of cash holding and derivatives use," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 608-631.
    17. Irene Brambilla & Daniel Lederman & Guido Porto, 2012. "Exports, Export Destinations, and Skills," American Economic Review, American Economic Association, vol. 102(7), pages 3406-3438, December.
    18. Bauer, Thomas K. & Bender, Stefan, 2001. "Flexible Work Systems and the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 353, Institute of Labor Economics (IZA).
    19. Masoud Esmaeilikia & Behnam Fahimnia & Joeseph Sarkis & Kannan Govindan & Arun Kumar & John Mo, 2016. "Tactical supply chain planning models with inherent flexibility: definition and review," Annals of Operations Research, Springer, vol. 244(2), pages 407-427, September.
    20. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    21. David J. Teece & Gary Pisano & Amy Shuen, 1997. "Dynamic capabilities and strategic management," Strategic Management Journal, Wiley Blackwell, vol. 18(7), pages 509-533, August.
    22. Louis Eeckhoudt & Christian Gollier & Harris Schlesinger, 1995. "The Risk-Averse (and Prudent) Newsboy," Management Science, INFORMS, vol. 41(5), pages 786-794, May.
    23. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    24. Kyle Handley & Nuno Limão, 2018. "Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 5, pages 123-175, World Scientific Publishing Co. Pte. Ltd..
    25. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    26. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2016. "Do Exporters Really Pay Higher Wages? First Evidence from German Linked Employer–Employee Data," World Scientific Book Chapters, in: Microeconometrics of International Trade, chapter 5, pages 177-213, World Scientific Publishing Co. Pte. Ltd..
    27. Izumi Yokoyama & Kazuhito Higa & Daiji Kawaguchi, 2018. "Adjustments of regular and non-regular workers to exogenous shocks: Evidence from exchange rate fluctuation," Bank of Japan Working Paper Series 18-E-2, Bank of Japan.
    28. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction and Firm Organization Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1201-1237.
    29. Gene Grossman, 2013. "Heterogeneous workers and international trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(2), pages 211-245, June.
    30. Bertil Holmlund & Donald Storrie, 2002. "Temporary Work In Turbulent Times: The Swedish Experience," Economic Journal, Royal Economic Society, vol. 112(480), pages 245-269, June.
    31. von Below, David & Thoursie, Peter Skogman, 2010. "Last in, first out?: Estimating the effect of seniority rules in Sweden," Labour Economics, Elsevier, vol. 17(6), pages 987-997, December.
    32. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    33. Daron Acemoglu & Philippe Aghion & Claire Lelarge & John Van Reenen & Fabrizio Zilibotti, 2007. "Technology, Information, and the Decentralization of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1759-1799.
    34. Bernard, Andrew B. & Jensen, J. Bradford, 1997. "Exporters, skill upgrading, and the wage gap," Journal of International Economics, Elsevier, vol. 42(1-2), pages 3-31, February.
    35. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    36. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.
    37. Brad Hershbein & Lisa B. Kahn, 2018. "Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings," American Economic Review, American Economic Association, vol. 108(7), pages 1737-1772, July.
    38. Eve Caroli & John Van Reenen, 2001. "Skill-Biased Organizational Change? Evidence from A Panel of British and French Establishments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1449-1492.
    39. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Zhu, Susan Chun, 2017. "Global engagement and the occupational structure of firms," European Economic Review, Elsevier, vol. 100(C), pages 273-292.
    40. Gilboa,Itzhak, 2009. "Theory of Decision under Uncertainty," Cambridge Books, Cambridge University Press, number 9780521741231, October.
    41. Masoud Esmaeilikia & Behnam Fahimnia & Joeseph Sarkis & Kannan Govindan & Arun Kumar & John Mo, 2016. "A tactical supply chain planning model with multiple flexibility options: an empirical evaluation," Annals of Operations Research, Springer, vol. 244(2), pages 429-454, September.
    42. repec:hal:spmain:info:hdl:2441/juegcqdoe81pq2u57eide0qm5 is not listed on IDEAS
    43. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
    44. Guay, Wayne & Kothari, S. P, 2003. "How much do firms hedge with derivatives?," Journal of Financial Economics, Elsevier, vol. 70(3), pages 423-461, December.
    45. Roger Bandick & Pär Hansson, 2009. "Inward FDI and demand for skills in manufacturing firms in Sweden," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 111-131, April.
    46. Silberberg, Eugene, 1971. "The le chatelier principle as a corollary to a generalized envelope theorem," Journal of Economic Theory, Elsevier, vol. 3(2), pages 146-155, June.
    47. repec:dau:papers:123456789/10093 is not listed on IDEAS
    48. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization? Corrigendum," American Economic Review, American Economic Association, vol. 98(3), pages 1195-1196, June.
    49. Modestino, Alicia Sasser & Shoag, Daniel & Ballance, Joshua, 2016. "Downskilling: changes in employer skill requirements over the business cycle," Labour Economics, Elsevier, vol. 41(C), pages 333-347.
    50. David Hummels & Rasmus J?rgensen & Jakob Munch & Chong Xiang, 2014. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 104(6), pages 1597-1629, June.
    51. Guy Michaels & Ashwini Natraj & John Van Reenen, 2014. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 60-77, March.
    52. George Stigler, 1939. "Production and Distribution in the Short Run," Journal of Political Economy, University of Chicago Press, vol. 47(3), pages 305-305.
    53. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, vol. 68(1), pages 188-218, January.
    54. Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-588, November.
    55. Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2017. "Volatility Due to Offshoring: Theory and Evidence," World Scientific Book Chapters, in: International Macroeconomic Interdependence, chapter 3, pages 45-77, World Scientific Publishing Co. Pte. Ltd..
    56. Bartram, Söhnke M. & Brown, Gregory W. & Conrad, Jennifer, 2011. "The Effects of Derivatives on Firm Risk and Value," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(4), pages 967-999, August.
    57. Bauer, Thomas & Bender, Stefan, 2001. "Flexible Wages Systems and the Structure of Wages: Evidence from Matched Employer-Employee Data," CEPR Discussion Papers 2980, C.E.P.R. Discussion Papers.
    58. Allayannis, George & Lel, Ugur & Miller, Darius P., 2012. "The use of foreign currency derivatives, corporate governance, and firm value around the world," Journal of International Economics, Elsevier, vol. 87(1), pages 65-79.
    59. Niklas Amberg & Richard Friberg, 2016. "Three Approaches to Risk Management—and How and Why Swedish Companies Use Them," Journal of Applied Corporate Finance, Morgan Stanley, vol. 28(1), pages 86-94, March.
    60. Myong‐Hun Chang & Joseph E. Harrington, 1996. "The Interactive Effect of Product Differentiation and Cost Variability on Profit," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 175-193, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicola Gagliardi & Benoît Mahy & François Rycx, 2020. "Trade, GVCs, and wage inequality: Theoretical and empirical insights," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 115-134.
    2. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    3. Bas, Maria & Bombarda, Pamela & Jean, Sébastien & Orefice, Gianluca, 2021. "Firms’ exports, volatility and skills: Evidence from France," European Economic Review, Elsevier, vol. 140(C).
    4. Davidson, Carl & Heyman, Fredrik & Matusz, Steven & Sjöholm, Fredrik & Zhu, Susan Chun, 2017. "Global engagement and the occupational structure of firms," European Economic Review, Elsevier, vol. 100(C), pages 273-292.
    5. Phillipe Aghion & Nicholas Bloom & John Van Reenen, 2014. "Incomplete Contracts and the Internal Organization of Firms," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 37-63.
    6. Taiji Furusawa & Hideo Konishi & Duong Lam Anh Tran, 2020. "International Trade and Income Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(3), pages 993-1026, July.
    7. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    9. Cilekoglu, Akin A. & Moreno, Rosina & Ramos, Raul, 2024. "The impact of robot adoption on global sourcing," Research Policy, Elsevier, vol. 53(3).
    10. Baumgarten, Daniel, 2013. "Exporters and the rise in wage inequality: Evidence from German linked employer–employee data," Journal of International Economics, Elsevier, vol. 90(1), pages 201-217.
    11. Liang Zhang & Bin Qiu & Xiaocong Xu & Shaoqin Sun, 2021. "Offshoring, Wages, and Skill Premiums: Firm‐level Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(5), pages 1-27, September.
    12. Marianne Matthee & Neil Rankin & Carli Bezuidenhout, 2017. "Labour demand and the distribution of wages in South African manufacturing exporters," WIDER Working Paper Series 011, World Institute for Development Economic Research (UNU-WIDER).
    13. Krishna, Pravin & Poole, Jennifer P. & Senses, Mine Zeynep, 2014. "Wage Effects of Trade Reform with Endogenous Worker Mobility," Journal of International Economics, Elsevier, vol. 93(2), pages 239-252.
    14. Irene Brambilla & Nicolas Depetris Chauvin & Guido Porto, 2015. "Wage and Employment Gains from Exports: Evidence from Developing Countries," Working Papers 2015-28, CEPII research center.
    15. Carli Bezuidenhout & Marianne Matthee & Neil Rankin, 2021. "Exporting and the wage premium: The case of South African manufacturing firms," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2031-2051, November.
    16. Viete, Steffen & Erdsiek, Daniel, 2020. "Mobile Information Technologies and Firm Performance: The Role of Employee Autonomy," Information Economics and Policy, Elsevier, vol. 51(C).
    17. Marianne Matthee & Neil Rankin & Carli Bezuidenhout, 2017. "Labour demand and the distribution of wages in South African manufacturing exporters," WIDER Working Paper Series wp-2017-11, World Institute for Development Economic Research (UNU-WIDER).
    18. Araújo, Bruno César & Paz, Lourenço S., 2014. "The effects of exporting on wages: An evaluation using the 1999 Brazilian exchange rate devaluation," Journal of Development Economics, Elsevier, vol. 111(C), pages 1-16.
    19. Nicholas Bloom & Tarek Alexander Hassan & Aakash Kalyani & Josh Lerner & Ahmed Tahoun, 2021. "The diffusion of disruptive technologies," CEP Discussion Papers dp1798, Centre for Economic Performance, LSE.
    20. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.

    More about this item

    Keywords

    Skill-biased organizational change; Exchange rate risk; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:weltar:v:156:y:2020:i:2:d:10.1007_s10290-019-00363-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.