Staff Reports

Exchange Rates and Wages

February 2001Number 116
JEL classification: F31, F3, F4, J30, E24

Authors: Linda Goldberg and Joseph Tracy

Understanding the effects of exchange rate fluctuations across the population isimportant for increasingly globalized economies. Previous studies using industry aggregate data have found that industry wages are significantly more responsive than industry employment to exchange rate changes. We offer an explanation for this paradoxical finding. Using Current Population Survey data for 1976 through 1998, we document that the main mechanism for exchange rate effects on wages occurs through job turnover and the strong consequences this has for the wages of workers undergoing such job transitions. By contrast, workers who remain with the same employer experience little, if any, wage impacts from exchange rate shocks. In addition, we find that the least educated workers—who also have the most frequent job changes—shoulder the largest adjustments to exchange rates.

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