The Skill-Biased Effects of Exchange Rate Fluctuations

Research, Preprint English OPEN
Kaiser, Boris ; Siegenthaler, Michael (2015)
  • Publisher: KOF Swiss Economic Institute, ETH Zurich
  • Related identifiers: doi: 10.3929/ethz-a-010479940
  • Subject: Labor Demand, Skill Intensity, Employment, Real Exchange Rates, Firms' Foreign Exposure | Skill Intensity | F31 | E24 | Firms' Foreign Exposure | F16 | Employment | Labor Demand | Economics | LABOUR MARKET AND EMPLOYMENT; Firms’ Foreign Exposure; BUSINESS ORGANIZATIONS; ARBEITSMARKT UND BESCHÄFTIGUNG; Real Exchange Rates; Employment; UNTERNEHMENSORGANISATIONEN; SCHWEIZ (MITTELEUROPA). SCHWEIZERISCHE EIDGENOSSENSCHAFT; WIRTSCHAFTLICHER WETTBEWERB; SWITZERLAND (CENTRAL EUROPE). SWISS CONFEDERATION; Labor Demand; ECONOMIC COMPETITION; Skill Intensity; WECHSELKURS; EXCHANGE RATE | Real Exchange Rates
    • ddc: ddc:330
    mesheuropmc: education | behavioral disciplines and activities

This paper examines the linkages between real exchange rate movements and firms' skill demand. Real exchange rate movements may affect unskilled workers differently than skilled workers because of skill-specific adjustment costs, or because exchange rates lead to changes in relative factor prices and firms' competition intensity. Using panel data on Swiss manufacturers, we find that an appreciation increases high-skilled and reduces low-skilled employment in most firms, while total employment remains roughly unchanged. We find evidence that exchange rates influence firms' skill intensity because they affect outsourcing activities, innovation efforts, and firms' compensation schemes.
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