Exchange Rate, External Orientation of Firms and Wage Adjustment

Francesco Nucci and Alberto Pozzolo

No 70, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We estimate the effect of exchange rate movements on firm-level wages, using a representative panel of manufacturing firms. We show that the direction and size of wage adjustment is shaped by the international exposure of each firm on both the sale and cost side of the balance sheet, similar to the response of employment documented in Nucci and Pozzolo (2010). Through the revenue side, wages tend to rise after a currency depreciation and the effect is more pronounced the higher is the firm's exposure to sales from exports. Through the expenditure side, a depreciation induces a cut in the firm's wages, and the effect is larger the higher is the incidence of imported inputs in total production costs. For a given degree of external orientation, both these effects are larger for firms with a lower market power. Moreover, we document that the effect of exchange rates on wages is shaped by (i) the extent of sectoral import penetration in the domestic market; (ii) the proportion of newly hired workers in each firm in a given year; and (iii) the composition of the firm's workforce by occupational category.

Keywords: Exchange Rate; Firms' Foreign Exposure; Wages (search for similar items in EconPapers)
JEL-codes: E24 F16 F31 (search for similar items in EconPapers)
Pages: 38
Date: 2012-05
New Economics Papers: this item is included in nep-lab
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Related works:
Journal Article: Exchange Rate, External Orientation of Firms and Wage Adjustment (2014)
Working Paper: Exchange Rate, External Orientation of Firms and Wage Adjustment (2012)
Working Paper: Exchange Rate, External Orientation of Firms and Wage Adjustment (2012)
Working Paper: Exchange Rate, External Orientation of Firms and Wage Adjustment (2012)
Working Paper: Exchange Rate, External Orientation of Firms and Wage Adjustment (2012)
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