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The Effect of Exchange Rate Fluctuations on Employment in a Segmented Labor Market

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  • YOKOYAMA Izumi
  • HIGA Kazuhito
  • KAWAGUCHI Daiji

Abstract

How do exchange rate fluctuations affect the employment of regular and non-regular workers in a segmented labor market? We investigate the effect of exchange rate fluctuations on the employment adjustment of regular and non-regular workers using heterogeneous dependence on international trade across firms for identification. The analysis of Japanese firm-level panel data reveals that appreciation of the yen decreases the employment of exporting firms. The adjustment elasticity of non-regular employment is about five times greater than that of regular employment. Regular employment reacts more to the permanent exchange rate shocks extracted by the Beverage and Nelson decomposition, whereas non-regular employment reacts less. The estimation results suggest a significant difference in adjustment costs between regular and non-regular employment in the segmented Japanese labor market.

Suggested Citation

  • YOKOYAMA Izumi & HIGA Kazuhito & KAWAGUCHI Daiji, 2015. "The Effect of Exchange Rate Fluctuations on Employment in a Segmented Labor Market," Discussion papers 15139, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:15139
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