The Effect of Exchange Rate Fluctuations on Employment in a Segmented Labor Market

Author Name YOKOYAMA Izumi (Hitotsubashi University) / HIGA Kazuhito (Kyushu University) / KAWAGUCHI Daiji (Faculty Fellow, RIETI)
Creation Date/NO. December 2015 15-E-139
Research Project The Changing Japanese Labor Market: A perspective and desirable policy responses
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How do exchange rate fluctuations affect the employment of regular and non-regular workers in a segmented labor market? We investigate the effect of exchange rate fluctuations on the employment adjustment of regular and non-regular workers using heterogeneous dependence on international trade across firms for identification. The analysis of Japanese firm-level panel data reveals that appreciation of the yen decreases the employment of exporting firms. The adjustment elasticity of non-regular employment is about five times greater than that of regular employment. Regular employment reacts more to the permanent exchange rate shocks extracted by the Beverage and Nelson decomposition, whereas non-regular employment reacts less. The estimation results suggest a significant difference in adjustment costs between regular and non-regular employment in the segmented Japanese labor market.

Published: Yokoyama, Izumi, Kazuhito Higa and Daiji Kawaguchi, 2021. "Employment adjustments of regular and non-regular workers to exogenous shocks: Evidence from exchange-rate fluctuation," Industrial and Labor Relations Review, Vol. 74(2), pp. 470-510.