Exchange Rates and Jobs: What Do We Learn from Job Flows?

Currency fluctuations provide a substantial source of movements in relative prices that is largely exogenous to the firm. This paper evaluates empirically and theoretically the importance of exchange-rate movements on job reallocation across and within sectors. The objective is (1) to provide accurate estimates of the impact of exchange-rate fluctuations and (2) to further our understanding of how reallocative shocks propagate through the economy. The empirical results indicate that exchange rates have a significant effect on gross and net job flows in the traded goods sector. Moreover, the paper finds that job creation and destruction comove positively, following a real-exchange-rate shock. Appreciations are associated with additional turbulence, and depreciations with a "chill." The paper then argues that existing nonrepresentative agent reallocation models have a hard time replicating the salient features of the data. The results indicate a strong tension between the positive comovements of gross flows in response to reallocative disturbances and the negative comovement in response to aggregate shocks.