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Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries

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  • Danny Leung
  • Terence Yuen

Abstract

The authors provide some of the first empirical evidence on labour market adjustments to exchange rate movements in Canadian manufacturing industries. Generalized method of moments estimates that control for endogeneity show that there are significant changes in labour input when a change in the exchange rate occurs. During the 1981–97 period, the cumulative effect of a 10 per cent depreciation (appreciation) of the Canadian dollar was a 10 to 12.5 per cent increase (decline) in labour input. The majority of this effect was due to the increase (decrease) in the demand for domestically produced goods both at home and abroad when a depreciation (appreciation) occurs. The authors find evidence that the responsiveness of labour input to exchange rate movements was greater in the 1990s than in the 1980s. They also find that industries with high and medium net trade exposures adjust their labour inputs more than industries with low trade exposures. The exchange rate effect on real wages is estimated to be virtually zero for all manufacturing industries.

Suggested Citation

  • Danny Leung & Terence Yuen, 2005. "Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries," Staff Working Papers 05-14, Bank of Canada.
    • Handle: RePEc:bca:bocawp:05-14
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    Cited by:

    1. Gabriel Bruneau & Kevin Moran, 2017. "Exchange rate fluctuations and labour market adjustments in Canadian manufacturing industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 72-93, February.
    2. Stephen Tapp, 2011. "Lost in transition: the costs and consequences of sectoral labour adjustment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1264-1296, November.
    3. Danny Leung & Terence Yuen, 2010. "Do exchange rates affect the capital-labour ratio? Panel evidence from Canadian manufacturing industries," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2519-2535.
    4. Serge Coulombe, 2008. "Employment Adjustments in High-Trade-Exposed Manufacturing in Canada," Working Papers 0803E, University of Ottawa, Department of Economics.
    5. Loretta Fung & Jen Baggs & Eugene Beaulieu, 2011. "Plant Scale and Exchange‐Rate‐Induced Productivity Growth," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1197-1230, December.
    6. José Tomás Peláez S. & Lya Paola Sierra S., 2016. "Does Industrial Employment React to Movements in the Real Exchange Rate? An Empirical Analysis for Colombia, 2000-2010," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 53(1), pages 39-60, December.
    7. Juan Manuel Candelo-Viafara & Andrés Oviedo-Gómez, 2021. "La tasa de cambio y sus impactos en los agregados económicos colombianos: una aproximación FAVAR," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 29(2), pages 121-142, October.

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    More about this item

    Keywords

    Labour Markets; Exchange rates;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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