IDEAS home Printed from https://ideas.repec.org/p/gmf/wpaper/2010-23.html
   My bibliography  Save this paper

Manufacturing employment and exchange rates in the Portuguese economy: the role of openness, technology and labour market rigidity

Author

Listed:
  • Fernando Alexandre

    (University of Minho and NIPE)

  • Pedro Bação

    (University of Coimbra and GEMF)

  • João Cerejeira

    (University of Minho and NIPE)

  • Miguel Portela

    (University of Minho, NIPE and IZA)

Abstract

Integration into the world economy, specialization in low-technology sectors and labour market rigidity have been singled out as structural features of the Portuguese economy that are crucial for the understanding of its performance. In this paper, we explore empirically the role of openness, technology and labour market rigidity in the determination of the effect of the exchange rate on the dynamics of employment in Portugal. Our estimates indicate that employment in low-technology sectors with a high degree of trade openness and facing less rigidity in the labour market is more sensitive to movements in exchange rates. Therefore, our results provide additional evidence on the relevance of those structural features for explaining the evolution of the Portuguese economy in the last decades. In this paper the degree of labour market rigidity is measured at the sector level by means of a novel index. According to this index, high-technology sectors face less labour market rigidity. These sectors are also more exposed to international competition. However, the bulk of employment destruction has occurred in low-technology sectors. This suggests that productivity/technology may be the key variable to reduce the economy's exposure to external shocks.

Suggested Citation

  • Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2010. "Manufacturing employment and exchange rates in the Portuguese economy: the role of openness, technology and labour market rigidity," GEMF Working Papers 2010-23, GEMF, Faculty of Economics, University of Coimbra.
  • Handle: RePEc:gmf:wpaper:2010-23
    as

    Download full text from publisher

    File URL: http://gemf.fe.uc.pt/workingpapers/pdf/2010/gemf_2010-23.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
    2. Jose Manuel Campa & Linda S. Goldberg, 2001. "Employment Versus Wage Adjustment And The U.S. Dollar," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 477-489, August.
    3. Haltiwanger, John C. & Scarpetta, Stefano & Schweiger, Helena, 2006. "Assessing Job Flows across Countries: The Role of Industry, Firm Size and Regulations," IZA Discussion Papers 2450, Institute of Labor Economics (IZA).
    4. João Amador & José R. Maria & Sónia Cabral, 2007. "International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries?," Working Papers w200714, Banco de Portugal, Economics and Research Department.
    5. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
    6. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
    7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    8. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
    9. João Amador & José R. Maria & Sónia Cabral, 2007. "Export Specialization Over the Last Four Decades: How Does Portugal Compare With Other Cohesion Countries?," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    10. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    11. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
    12. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2010. "Employment, exchange rates and labour market rigidity," GEMF Working Papers 2010-03, GEMF, Faculty of Economics, University of Coimbra.
    13. João Amador & Sónia Cabral, 2009. "Portuguese International Trade in Services," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    14. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
    15. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2009. "The margins of labour cost adjustment: survey evidence from european firms," Working Papers 108, Bank of Greece.
    16. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2011. "Employment and Exchange Rates: The Role of Openness and Technology," Open Economies Review, Springer, vol. 22(5), pages 969-984, November.
    17. Bertola, Giuseppe, 1992. "Labor Turnover Costs and Average Labor Demand," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 389-411, October.
    18. Álvaro A. Novo & Mário Centeno & Carla Machado, 2007. "Job Creation and Destruction in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    19. Vitor Constancio & Ana Cristina Leal & Mário Centeno & Nuno Alves & Isabel Correia & Sandra Gomes & João Sousa & Vanda Almeida & Gabriela Castro & Ricardo Mourinho Félix & Carlos Robalo Marques & Fern, . "The Portuguese Economy in the Context of Economic, Financial and Monetary Integration," Books, Banco de Portugal, Economics and Research Department, number bk200901.
    20. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    21. repec:spo:wpecon:info:hdl:2441/10221 is not listed on IDEAS
    22. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," Notas Económicas, Faculty of Economics, University of Coimbra, issue 30, pages 6-28, December.
    23. Gabriel Fagan & Vítor Gaspar, 2007. "Adjusting to the Euro," Working Papers w200703, Banco de Portugal, Economics and Research Department.
    24. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222, National Bureau of Economic Research, Inc.
    25. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    26. Klein, Michael W. & Schuh, Scott & Triest, Robert K., 2003. "Job creation, job destruction, and the real exchange rate," Journal of International Economics, Elsevier, vol. 59(2), pages 239-265, March.
    27. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
    28. Nicolas Berman & Philippe Martin & Thierry Mayer, 2009. "How do Different Exporters React to Exchange Rate Changes? Theory, Empirics and Aggregate Implications," Working Papers 2009-32, CEPII research center.
    29. Portela, Miguel, 2001. "Measuring skill: a multi-dimensional index," Economics Letters, Elsevier, vol. 72(1), pages 27-32, July.
    30. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16.
    31. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    32. Gomez-Salvador, Ramon & Messina, Julian & Vallanti, Giovanna, 2004. "Gross job flows and institutions in Europe," Labour Economics, Elsevier, vol. 11(4), pages 469-485, August.
    33. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
    34. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1215-1244.
    35. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    36. William H. Branson & James Love, 1988. "U.S. Manufacturing and the Real Exchange Rate," NBER Chapters, in: Misalignment of Exchange Rates: Effects on Trade and Industry, pages 241-276, National Bureau of Economic Research, Inc.
    37. Ekholm, Karolina & Moxnes, Andreas & Ulltveit-Moe, Karen Helene, 2012. "Manufacturing restructuring and the role of real exchange rate shocks," Journal of International Economics, Elsevier, vol. 86(1), pages 101-117.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ricardo Reis, 2013. "The Portugese Slump and Crash and the Euro Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 143-210.
    2. Rong, Shu & Liu, Kai & Huang, Si & Zhang, Qi, 2020. "FDI, labor market flexibility and employment in China," China Economic Review, Elsevier, vol. 61(C).
    3. João Carlos Lopes & Paula Cristina Albuquerque, 2012. "The characteristics and regional distribution of older workers in Portugal," Working Papers Department of Economics 2012/22, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.

    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. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2011. "Employment and Exchange Rates: The Role of Openness and Technology," Open Economies Review, Springer, vol. 22(5), pages 969-984, November.
    2. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2010. "Employment, exchange rates and labour market rigidity," GEMF Working Papers 2010-03, GEMF, Faculty of Economics, University of Coimbra.
    3. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2017. "Exchange Rates, Employment and Labour Market Rigidity," The World Economy, Wiley Blackwell, vol. 40(5), pages 993-1011, May.
    4. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," Notas Económicas, Faculty of Economics, University of Coimbra, issue 30, pages 6-28, December.
    5. Carmen Pagés-Serra & Alejandro Micco, 2008. "Efectos económicos de la protección del empleo: Elementos de juicio a partir de datos internacionales a nivel de actividad económica," Research Department Publications 4497, Inter-American Development Bank, Research Department.
    6. Pierre, Gaëlle & Scarpetta, Stefano, 2004. "Employment Regulations through the Eyes of Employers: Do They Matter and How Do Firms Respond to Them?," IZA Discussion Papers 1424, Institute of Labor Economics (IZA).
    7. Campbell, Douglas L., 2020. "Relative Prices and Hysteresis: Evidence from US Manufacturing," European Economic Review, Elsevier, vol. 129(C).
    8. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute of Labor Economics (IZA).
    9. Micco, Alejandro & Pagés, Carmen, 2006. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IZA Discussion Papers 2433, Institute of Labor Economics (IZA).
    10. John Martin & Stefano Scarpetta, 2012. "Setting It Right: Employment Protection, Labour Reallocation and Productivity," De Economist, Springer, vol. 160(2), pages 89-116, June.
    11. Alejandro Micco & Carmen Pagés-Serra, 2004. "Protección del empleo y flujo bruto de puestos de trabajo: un enfoque de diferencias en diferencias," Research Department Publications 4366, Inter-American Development Bank, Research Department.
    12. A. Kerem Co?ar & Nezih Guner & James Tybout, 2016. "Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy," American Economic Review, American Economic Association, vol. 106(3), pages 625-663, March.
    13. Alejandro Micco & Carmen Pagés-Serra, 2004. "Employment Protection and Gross Job Flows: A Differences-in-Differences Approach," Research Department Publications 4365, Inter-American Development Bank, Research Department.
    14. Bo Gao & Jing Ma & Zheng Wang, 2021. "The employment and wage effects of export VAT rebates: evidence from China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 347-373, May.
    15. Ekholm, Karolina & Moxnes, Andreas & Ulltveit-Moe, Karen Helene, 2012. "Manufacturing restructuring and the role of real exchange rate shocks," Journal of International Economics, Elsevier, vol. 86(1), pages 101-117.
    16. Andrea Vindigni & Simone Scotti & Cristina Tealdi, 2015. "Uncertainty and the Politics of Employment Protection," Journal of Labor Economics, University of Chicago Press, vol. 33(1), pages 209-267.
    17. Martin-Barroso, David & Nuñez-Serrano, Juan Andres & Turrion, Jaime & Velazquez, Francisco J., 2011. "The European Map of Job Flows," MPRA Paper 33602, University Library of Munich, Germany, revised 2011.
    18. Moser, Christoph & Urban, Dieter & di Mauro, Beatrice Weder, 2010. "International competitiveness, job creation and job destruction--An establishment-level study of German job flows," Journal of International Economics, Elsevier, vol. 80(2), pages 302-317, March.
    19. Klein, Michael W. & Schuh, Scott & Triest, Robert K., 2003. "Job creation, job destruction, and the real exchange rate," Journal of International Economics, Elsevier, vol. 59(2), pages 239-265, March.
    20. Ligia Alba Melo & Carlos Andrés Ballesteros, 2013. "Creación, destrucción y reasignación del empleo en el sector manufacturero colombiano," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 15(28), pages 281-311, January-J.

    More about this item

    Keywords

    exchange rates; international trade; job flows; labour market rigidity; technology;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    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:gmf:wpaper:2010-23. 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: . General contact details of provider: https://edirc.repec.org/data/cebucpt.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 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: Sofia Antunes The email address of this maintainer does not seem to be valid anymore. Please ask Sofia Antunes to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/cebucpt.html .

    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.