The Skill-Biased Effects of Exchange Rate Fluctuations

This article examines the linkages between real exchange rate movements and firms' skill demand. Augmenting the model of Campa and Goldberg (2001) with heterogeneous labour, we show that exchange rate movements may affect unskilled workers differently than skilled workers because they change the relative price of imported inputs. Using panel data on Swiss manufacturers covering the period 1998–2012, we find that an appreciation increases high-skilled and reduces low-skilled employment in most firms. We present evidence consistent with our model that the skill-biased effects of exchange rates arise because unskilled labour is more substitutable with imported inputs than skilled labour.