Labour Demand and Exchange Rate Volatility

Udo Broll and Sabine Hansen

No 28, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: The purpose of this paper is to assess under what conditions exchange rate volatility exerts a positive effect on a firm's labour demand. As the exchange rate volatility increases, so does the value of the export option provided the firm under study is flexible. Flexibility is important because it gives the firm option value. Higher volatility increases the potential gains from trade and may increase the demand for labour. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on labour demand and international trade.

Keywords: Labour demand; Exchange rate risk; Risk aversion; Flexibility; Real option; International trade (search for similar items in EconPapers)
JEL-codes: F16 F23 F31 F41 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:28

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