Exchange Rate, Employment and Hours: What Firm-Level Data Say

Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on the firm's exposure to foreign sales and its reliance on imported inputs. Further, we show that, for given international;orientation, the response to exchange rate ;fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specilcity in the employment sensitivity;to exchange rate swings. Further, wage adjustments are also shown to provide a channel through which firms react to currency shocks. Finally, gross job ;ows within the firm are found to depend;on exchange rate fluctuations, although the effect on job creation is predominant.