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Employment and Exchange Rates: The Role of Openness and Technology

  • Alexandre, Fernando


    (University of Minho)

  • Bação, Pedro


    (University of Coimbra)

  • Cerejeira, João


    (University of Minho)

  • Portela, Miguel


    (University of Minho)

Real exchange rate movements are important drivers of the reallocation of resources between sectors of the economy. Economic theory suggests that the impact of exchange rates should vary with the degree of exposure to international competition and with the technology level. This paper contributes by bringing together these two views, both theoretically and empirically. We show that both the degree of openness and the technology level mediate the impact of exchange rate movements on labour market developments. According to our estimations, whereas employment in high-technology sectors seems to be relatively immune to changes in real exchange rates, these appear to have sizable and significant effects on highly open low-technology sectors. The analysis of job flows suggests that the impact of exchange rates on these sectors occurs through employment destruction.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4191.

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Length: 42 pages
Date of creation: May 2009
Date of revision:
Publication status: published in: Open Economies Review 2011, ,22 (5), 969 - 984
Handle: RePEc:iza:izadps:dp4191
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