IDEAS home Printed from https://ideas.repec.org/p/deg/conpap/c016_038.html
   My bibliography  Save this paper

Floating Exchange Rates as Employment Protection

Author

Listed:
  • Yu-Fu Chen
  • Gylfi Zoega

Abstract

Floating exchange rates allow central banks to respond to aggregate demand fluctuations by changing their interest rates. However, such fluctuations create inertia in the labour market by increasing the cost of hiring and firing workers. A regime of flexible exchange rates can cause rigidities in labour markets similar to those caused by legalised firing restrictions. Exchange rate volatility makes firms wait before hiring new workers and firing existing ones. Thus the adoption of a common currency has effects very similar to the removal of employment-protection legislation and other direct restrictions on hiring and firing. Exchange-rate volatility is more harmful for the entry of new firms than employment-protection legislation, particularly promising, high-risk ventures.

Suggested Citation

  • Yu-Fu Chen & Gylfi Zoega, 2011. "Floating Exchange Rates as Employment Protection," DEGIT Conference Papers c016_038, DEGIT, Dynamics, Economic Growth, and International Trade.
  • Handle: RePEc:deg:conpap:c016_038
    as

    Download full text from publisher

    File URL: http://degit.sam.sdu.dk/papers/degit_16/c016_038.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Yu-Fu Chen & Dennis Snower & Gylfi Zoega, 2003. "Labour-market Institutions and Macroeconomic Shocks," LABOUR, CEIS, vol. 17(2), pages 247-270, June.
    2. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2007. "Reforms, Exchange Rates and Monetary Commitment: A Panel Analysis for OECD Countries," Open Economies Review, Springer, vol. 18(3), pages 369-388, July.
    3. Elżbieta Bednarek-Sekunda & Richard Jong-A-Pin & Jakob de Haan, 2010. "The European Economic and Monetary Union and Labour Market Reform," European Union Politics, , vol. 11(1), pages 3-27, March.
    4. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
    5. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    6. Bentolila, Samuel & Saint-Paul, Gilles, 1991. "The Macroeconomic Impact of Flexible Labour Contracts: An Application to Spain," CEPR Discussion Papers 596, C.E.P.R. Discussion Papers.
    7. Yu-Fu Chen & Gylfi Zoega, "undated". "On The Effectiveness Of Firing Costs," Dundee Discussion Papers in Economics 087, Economic Studies, University of Dundee.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Floating Exchange Rates; Labour-market Flexibility;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:deg:conpap:c016_038. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jan Pedersen). General contact details of provider: http://edirc.repec.org/data/iehhsdk.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.