Employment, Exchange Rates and Labour Market Rigidity

Fernando Alexandre (), Pedro Bação, João Cerejeira () and Miguel Portela ()

No 4891, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: There is increasing evidence that the interaction between shocks and labour market institutions is crucial to understanding the dynamics of employment. In this paper, we show that the inclusion of labour adjustment costs in a trade model affects the impact of exchange rate movements on employment. We also explore how labour market rigidities interact with the degree of exposure to international competition and with the technology level. Our model-based predictions are consistent with estimates obtained using panel data for 23 OECD countries. Namely, our estimates suggest that employment in low-technology sectors that have a very high degree of openness to trade and are located in countries with more flexible labour markets are more sensitive to exchange rate changes. Our model and estimates therefore provide additional evidence on the importance of interacting external shocks and labour market institutions.

Keywords: international trade; exchange rates; employment protection; job flows (search for similar items in EconPapers)
JEL-codes: F16 F41 J23 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2010-04
New Economics Papers: this item is included in nep-cba and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - published in: World Economy, 2017, 40 (5), 993 - 1011

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Related works:
Working Paper: Employment, exchange rates and labour market rigidity (2010)
Working Paper: Employment, exchange rates and labour market rigidity (2010)
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