Exchange-rate stability as a trade union’s discipline device

Corrado Andini

Journal of Economic Studies, 2025, vol. 53, issue 2, 401-416

Abstract: PurposeThe paper deals with a classical topic in international macroeconomics and finance: to what extent exchange-rate policies affect domestic macroeconomic outcomes. In particular, it studies whether a fixed exchange-rate policy is likely to impoverish resident wage earners in the private sector of a unionized economy, as suggested by earlier research on the labor-market effects of exchange-rate stability.Design/methodology/approachWorker-level data from the European Community Household Panel are used to provide novel quasi-experimental evidence on the labor-market effects of exchange-rate stability as well as to perform a robustness analysis of earlier research on the topic, including a falsification exercise.FindingsEarlier research seems robust to confounding factors as well as to endogeneity and anticipation issues. Yet, a deeper statistical analysis reveals that the treatment effect of exchange-rate stability on wages is driven by both year and quantile parameter heterogeneity.Research limitations/implicationsExchange-rate stability affects both the location and the shape of the conditional wage distribution in the private sector of a unionized economy.Practical implicationsA fixed exchange-rate policy reduces the mean of the conditional wage distribution in the private sector of a unionized economy in the years following the contract renewals that occur under the policy.Social implicationsA fixed exchange-rate policy increases the dispersion of the conditional wage distribution in the private sector of a unionized economy as workers located at lower quantiles are more penalized than those located at upper quantiles.Originality/valueTo the best of our knowledge, this paper is the first that performs a falsification exercise with worker-level data in the field of international macroeconomics and finance. It is also the first paper in the field that uses worker-level data to uncover year and quantile parameter heterogeneity in the treatment effect of exchange-rate stability on wages.

Keywords: Exchange rates; Wages; Difference-in-differences; Falsification; Heterogeneity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-07-2024-0469

DOI: 10.1108/JES-07-2024-0469

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