Working Paper: NBER ID: w17565
Authors: Risheng Mao; John Whalley
Abstract: This paper uses a firm level multi-industry data set covering 456 Chinese manufacturing sectors to assess the implications of Renminbi (RMB) real exchange rate appreciation for adjustments in employment and wage rates. We stress differences in both industry and firm characteristics within sectors. Our empirical results show that modest (and also larger) RMB real exchange rate appreciation would likely have pronounced effects on both net employment and wage rates. A 10% RMB appreciation would likely cause a net employment decline in Chinese manufacturing industries of between 4.1% and 5.3%, and a wage rate drop of 4% after controlling for other factors. Real exchange rate change effects by industry on net employment and wage rates vary significantly with the ownership characteristics of firms within industries. Employment and wage rates for private enterprises are less responsive to RMB real exchange rate fluctuations than is true for state owned enterprises (SOEs) and foreign invested enterprises (FIEs). This finding is opposite to the widely held belief that the labor market behavior of Chinese SOEs shows stronger labor market rigidities than for private firms. Impacts of exchange rate movements emerge as systematically related to export openness, overall import penetration and profit margins of individual manufacturing industries.
Keywords: real exchange rate; labor market adjustment; China; employment; wage rates
JEL Codes: F16; F31; J21; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RMB real exchange rate appreciation (F31) | net employment decline in Chinese manufacturing industries (O14) |
| RMB real exchange rate appreciation (F31) | wage rate drop (J31) |
| RMB real exchange rate appreciation (F31) | export openness (F40) |
| RMB real exchange rate appreciation (F31) | profit margins (L21) |
| export openness (F40) | net employment decline in Chinese manufacturing industries (O14) |
| profit margins (L21) | net employment decline in Chinese manufacturing industries (O14) |
| RMB real exchange rate appreciation (F31) | responsiveness of employment and wage rates (J39) |
| ownership characteristics (R21) | responsiveness of employment and wage rates (J39) |
| profit margins (L21) | responsiveness of employment and wage rates (J39) |