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Which factor bears the cost of currency crises?

Paul Maarek () and Elsa Orgiazzi ()

Economics Working Paper Archive (University of Rennes 1 & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS

Abstract: This paper identifies which of the two factors, namely labour and capital, bears the cost of currency crises and for what reasons. It analyzes two main types of effects that currency crises may have on the labour share: across sector effects and within sector effects. We build a descriptive model with a tradable sector and a non-tradable one which can differ in their capital intensities so that structural changes occurring during currency crises may change the aggregate level of the labour share. The model also highlights that crises erode the bargaining power of workers so that within sectors, crises lower the labour share. We perform estimations on manufacturing sectoral panel data for 20 countries which have experienced currency crises. We conclude that currency crises lower the aggregate manufacturing labour share by 2 points on average and that this decline reflects mostly changes within sectors.

Keywords: Currency crisis; Labour share; Factor reallocation; Matching frictions (search for similar items in EconPapers)
JEL-codes: E25 J42 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:201101

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