Job creation, job destruction, and the real exchange rate

Abstract

This paper contributes to an understanding of internationally generated adjustment costs by demonstrating a statistically significant and economically relevant effect of the real exchange rate on job creation and job destruction in U.S. manufacturing industries over the period 1973 to 1993. The responsiveness of these gross job flows to the real exchange rate reflects pervasive heterogeneity with respect to international conditions across firms, even within narrowly defined industries. We document this heterogeneity and show that the responsiveness of job flows to movements in the real exchange rate varies with the industry's openness to international trade. We also show an asymmetry in the responsiveness of job flows to the real exchange rate; appreciations play a significant role in job destruction, but job flows do not respond significantly to dollar depreciations.

Trade openness, real exchange rates and job reallocation: evidence from Belgium

“…This result is robust to using different measures of job flows, and is stable across a number of different estimations. Such evidence of a job destruction-driven adjustment is in line with earlier findings by Klein et al (2003a) for the US, and differs from what has been found for other European countries, in particular France (Gourinchas 1999) and Germany (Moser et al 2010), where the adjustment to RER shocks was mainly driven by the job creation margin. Moser et al (2010) attributed the difference between the US and Germany to the far-stricter employment protection legislation in Germany, which makes firing costly and thus prevents smooth adjustments to shocks through job destruction.…”

“…As previously mentioned, this paper builds upon previous work by Gourinchas (1988Gourinchas ( , 1999, Klein et al (2003a) and Moser et al (2010). More generally, it is related to the growing body of literature on the connections between international trade and the labor market, as reviewed by Klein et al (2003b) and Crino' (2009).…”

“…Until now, only a few papers have studied the relation between real effective exchange rates and job flows: Gourinchas (1998Gourinchas ( , 1999 on the US and France, respectively, Klein et al (2003a) on the US, and Moser et al (2010) on Germany. All these studies have found that real appreciations have a negative impact on net employment growth, and that this impact is magnified by increasing levels of trade exposure, at the firm and industry level.…”

“…3 Finally, very good data are available at the firm level for the Belgian manufacturing sector, allowing to carry a micro-founded analysis by relying on a large data set. 4 The empirical analysis is based on the theoretical model by Klein et al (2003a), where job flows are put in relation with industry-specific real exchange rate (RER) changes and openness to trade. The main prediction of the model is that a real appreciation induces lower job creation and higher job destruction at the industry level, and these effects are stronger the higher is the level of trade exposure in the industry.…”

Trade and Workforce Changeover in Brazil

“…However, studies that consider exchange rate effects beyond trade exposure, such as Gourinchas (1999) or Klein, Schuh and Triest (2003), do find systematic effects on employment flows. Klein et al (2003) find for the U.S. that job destruction, churning and net employment growth respond to exchange rate movements, while job creation is unresponsive. In the Brazilian case, Ribeiro, Corseuil, Santos, Furtado, Amorim, Servo and Souza (2004) compute industry-level rates of job creation and destruction to find that greater openness reduces employment through increased job destruction, with no effects on job creation, and that exchange rate depreciation increases job creation with no effect on job destruction.…”