The Theoretical And Empirical Study Of RMB Appreciation's Affect On Employment Of China

On July 21^st,2005,our government adopted a new foreign exchange rate regime of a managed Floating Exchange Rate which based on the supply and demand of the foreign exchange market,and to be adjusted according to a basket of foreign currencies.RMB appreciated 2%to USD on the very day and the appreciation trend remained.Till February 29^th,2008,RMB has appreciated 14.14%to USD.The foreign exchange rate of RMB to USD is 7.1058.The appreciation of RMB is a long-term trend which will exert deep influence on China's employment.On one hand,the appreciation of RMB will do harm to trade enterprises which are very sensible to exchange rate.On another hand,it may hasten the upgrade of our industry structure;transfer the labor force from the trade sector to the non-trade sector and increase workers' salary level.This paper aims to find if the appreciation of RMB will do harm to our employment and improve our industry structure;put forward some feasible suggestion based on the study in order to reduce the negative effect which RMB appreciation will exert on the employment.This paper is divided into four sections:Section 1 illustrates the background of the study,the related achievement both at home and abroad and the general framework of the study.Section 2 applies a Roberto Frenkel(2006)model to reveal the relation between real exchange rate and employment:The real exchange rate affects employment performance through three channels.Based on it,the paper discusses the mechanism by which RMB appreciation influences China's employment, including the channels through which RMB appreciation affects employment,the sensitivity our nation's employment to RMB appreciation and the influence exerted by the appreciation on the employment structure.Section 3 conducts an empirical research on the relationship between the RMB exchange rate and the gross employment as well as between the RMB exchange rate and the employment in the trade sector and the non-trade sector.The research concludes that RMB appreciation will cause the reduction of employment and the exchange rate volatility makes the influence obvious.However,at present,the appreciation of RMB cannot help our industry structure upgrade.The workers are unable to transfer from formal sector to informal sector.Still,appreciation can increase their salary level.Based on this conclusion,the last section gives some suggestions to reduce the negative effect exerted by RMB appreciation on China's employment.