Exchange Rates and Wages in an Integrated World

Antonio Spilimbergo and Prachi Mishra

No 2009/044, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; pay; unemployment rate; Migration; exchange rates; labor market integration; wage data; reservation wage; exchange rate movement; wages of immigrant; emigration rate; wage rate; Wages; Real exchange rates; Labor markets; Middle East; Eastern Europe; Europe (search for similar items in EconPapers)
Pages: 44
Date: 2009-03-01
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Exchange Rates and Wages in an Integrated World (2011)
Working Paper: Exchange Rates and Wages in an Integrated World (2009)
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