Exchange Rates and Wages in an Integrated World
March 1, 2009
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Summary
We analyze how the pass-through from exchange rate to domestic wages depends on the degree of integration between domestic and foreign labor markets. Using data from 66 countries over the period 1981–2005, we find that the elasticity of domestic wages to real exchange rate is 0.1 after a year for countries with high barriers to external labor mobility, but about 0.4 in countries with low barriers to mobility. The results are robust to the inclusion of various controls, different measures of exchange rates, and concepts of labor market integration. These findings call for including labor mobility in macro models of external adjustment.
Subject: Exchange rates, Foreign exchange, Labor, Labor markets, Migration, Population and demographics, Real exchange rates, Wages
Keywords: Eastern Europe, emigration rate, Europe, exchange rate movement, exchange rates, labor market integration, Labor markets, Middle East, Migration, pay, Real exchange rates, reservation wage, unemployment rate, wage data, wage rate, Wages, wages of immigrant, WP
Pages:
44
Volume:
2009
DOI:
Issue:
044
Series:
Working Paper No. 2009/044
Stock No:
WPIEA2009044
ISBN:
9781451871920
ISSN:
1018-5941
