Firm-Specific Exchange Rate Exposure and Employment Adjustment

Résumé du livre

We investigate how firms' exposure to exchange rate shocks affect their employment decisions using a comprehensive firm-level data from China that match employment information with exports by destination and imports by source country. Exposure to exchange rate shocks varies across firms because of firms' different export and import orientation, as well as different distributions of trading partners. We propose a theory-consistent and firm-specific measure of exchange rate exposure to account for both dimensions of heterogeneity and exploit the variations from both sources to identify the impact of exchange rate changes. We find that exchange rate changes significantly affect firm employment by changing their marginal revenue of exports and marginal cost of importing intermediate inputs. Job creation exhibits larger sensitivity to exchange rate changes than job destruction. Also, using firm-specific exchange rate exposure creates more theory-consistent estimation results than using aggregate exchange rate exposure in firm-level studies.