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Labour Demand and Exchange Rate Volatility

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  • Broll, Udo
  • Hansen, Sabine

Abstract

The purpose of this paper is to assess under what conditions exchange rate volatility exerts a positive effect on a firm's labour demand. As the exchange rate volatility increases, so does the value of the export option provided the firm under study is flexible. Flexibility is important because it gives the firm option value. Higher volatility increases the potential gains from trade and may increase the demand for labour. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on labour demand and international trade.

Suggested Citation

  • Broll, Udo & Hansen, Sabine, 2004. "Labour Demand and Exchange Rate Volatility," University of Göttingen Working Papers in Economics 28, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:28
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    References listed on IDEAS

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    More about this item

    Keywords

    Labour demand; Exchange rate risk; Risk aversion; Flexibility; Real option; International trade;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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