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Exchange Rates and Wages in an Integrated World

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  • Antonio Spilimbergo
  • Prachi Mishra

Abstract

We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.

Suggested Citation

  • Antonio Spilimbergo & Prachi Mishra, 2009. "Exchange Rates and Wages in an Integrated World," IMF Working Papers 09/44, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/44
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    References listed on IDEAS

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    Cited by:

    1. M. Bussière & G. Gaulier & W. Steingress, 2016. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Working papers 608, Banque de France.
    2. Nguyen, Ha Trong & Duncan, Alan S, 2017. "Exchange rate fluctuations and immigrants' labour market outcomes: New evidence from Australian household panel data," Journal of International Economics, Elsevier, vol. 105(C), pages 174-186.
    3. repec:eee:ecmode:v:64:y:2017:i:c:p:141-152 is not listed on IDEAS
    4. Navarro, Lucas, 2009. "Employment dynamics and crises in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

    More about this item

    Keywords

    Economic models; Exchange rates; Cross country analysis; Labor markets; Migration; Time series; Wages; labor market integration; exchange rate; wage; real exchange rate;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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