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Exchange rates and wages

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Abstract

Understanding the effects of exchange rate fluctuations across the population is important for increasingly globalized economies. Previous studies using industry aggregate data have found that industry wages are significantly more responsive than industry employment to exchange rate changes. We offer an explanation for this paradoxical finding. Using Current Population Survey data for 1976 through 1998, we document that the main mechanism for exchange rate effects on wages occurs through job turnover and the strong consequences this has for the wages of workers undergoing such job transitions. By contrast, workers who remain with the same employer experience little, if any, wage impacts from exchange rate shocks. In addition, we find that the least educated workers--who also have the most frequent job changes--shoulder the largest adjustments to exchange rates.

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  • Linda S. Goldberg & Joseph Tracy, 2001. "Exchange rates and wages," Staff Reports 116, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:116
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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