Employment and Exchange Rates:The Role of Openness and Technology

Real exchange rate movements are important drivers of the reallocation of resourcesbetween sectors of the economy. Economic theory suggests that the impact of exchangerates should vary with the degree of exposure to international competition and with thetechnology level. This paper contributes by bringing together these two views, boththeoretically and empirically. We show that both the degree of openness and the technologylevel mediate the impact of exchange rate movements on labour market developments.According to our estimations, whereas employment in high-technology sectors seems to berelatively immune to changes in real exchange rates, these appear to have sizable andsignificant effects on highly open low-technology sectors. The analysis of job flows suggeststhat the impact of exchange rates on these sectors occurs through employment destruction....