The Exchange Rate, Employment and Hours: What Firm-Level Data Say

Francesco Nucci and Alberto Pozzolo

No 9, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on firms’ exposure to foreign sales and their reliance on imported inputs. We also show that, for given international exposure, the response to exchange rate fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specificity in the employment sensitivity to exchange rate swings. We show that firms’ export status and episodes of entry and exit in the export market are associated with a heterogeneous employment response to exchange rate variations. Wage adjustments are shown to provide a channel through which firms react to currency shocks. Finally, gross job fiows within the firm are found to react to exchange rate fluctuations, but the effect on job creation is predominant.

Keywords: Employment; Exchange Rate; Firms’ Foreign Exposure (search for similar items in EconPapers)
JEL-codes: E24 F16 F31 (search for similar items in EconPapers)
Pages: 50
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Related works:
Journal Article: The exchange rate, employment and hours: What firm-level data say (2010)
Working Paper: Exchange Rate, Employment and Hours: What Firm-Level Data Say (2009)
Working Paper: Exchange Rate, Employment and Hours: What Firm-Level Data Say (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:wp2009-9

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