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The Real Exchange Rate and Employment in China

Author/Editor: Chen, Ruo | Dao, Mai
Authorized for Distribution: June 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,395KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We examine the impact of real exchange rate fluctuations on sectoral and regional employment in China from 1980 to 2008. In contrast to theoretical predictions, employment in both the tradable and non-tradable sectors contracts following a real appreciation. Our results are robust across different sub-samples, levels of sectoral disaggregation, and are more pronounced for regions with higher export exposure. We attribute our findings to the importance of services as intermediate input in exportable production. We test this channel of exchange rate transmission using regional input-output tables linked with employment data at the region-sector level. The results of this paper have important implications for China’s labor market adjustment should the Chinese RMB strengthen in the future. To mitigate the costs of short-run labor market adjustment, appropriate demand management and structural reforms in the non-traded sectors should play an important role.
 
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Series: Working Paper No. 11/148
Subject(s): China | Employment | Labor markets | Real effective exchange rates | China, People's Republic of
Author's keyword(s): Real exchange rate | Sectoral Reallocation | China
 
English  
    Published:   June 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011148   Pages:   50
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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