Rmb Exchange Rate, Foreign Trade And Employment Growth

Since the exchange rate reform in July 2005, the RMB exchange rate has appreciated continuously. The RMB exchange rate has appreciated more than 20%. The?RMB?appreciation reduces profits of export business, decreases the demand for labor and finally affects employment growth. But the employment growth doesn't decrease greatly. We need further research and analysis to test whether the relationship between RMB exchange rate and employment growth. The paper mainly researches whether the exchange rate reform in June 2005 stimulates the relationship of RMB exchange rate and employment growth into structural change. Besides, the paper analyses the concrete relationship of the RMB exchange rate fluctuations and employment growth.In theoretical analysis, this paper analyzes the impact of the exchange rate on employment growth through foreign trade channel. It further analyzes the relationship between exchange rate and foreign trade, foreign trade and employment growth. In the empirical analysis, in order to better measure the impact of RMB exchange rate on employment growth, the paper consider the channels of export orientation, import penetration, domestic aggregate demand, capital/labor intensity on the impact of employment growth.The paper uses Chow-test analysis to test the employment equation of exchange rate to find whether the exchange rate reform in 2005 stimulates the relationship of the RMB exchange rate and employment growth into a structural change by selecting sample data from January 1994 to March 2010. This article sets a structural model to test the structural change of employment elasticity coefficients of exchange rate by introducing dummy variables. And it's further confirms exchange rate reform in 2005 stimulates the relationship of exchange rate and employment growth into a structural change. It is the main innovative point in this paper.To test the concrete relationship of RMB exchange rate and employment growth, the paper uses co-integration analysis to study the long term relationship of the RMB exchange rate, foreign trade and employment growth by dividing the sample into two time periods base on the exchange rate reform in July 2005: one time period from January 1994 to June 2005, the other time period from July 2005 to March 2010. The result shows that the RMB exchange rate, foreign trade and employment growth keep a long-term co-integration relationship. After the exchange rate reform in 2005, the employment effect of the exchange rate is positive, and the employment elasticity coefficient of the exchange rate is statistically significant.The paper analyzes the reason of structural change. The RMB appreciation promotes labor and economic resources to flow from the trade sector to non-trade sector through price signals. Especially the rural labor force's employment increases in the tertiary sector. A large scale rural labor force transfers from east to west to seek job. This is mainly due to the substantially increase of foreign trade after the exchange rate reform in 2005. The employment effect of exchange rate appreciation through aggregate demand is weakened.The state enacts policy to support for Midwest, and the Midwest is developing rapidly, and ultimately promotes the growth of employment.In empirical analyses, this article use error correction model, the impulse response function and variance decomposition to test the employment effect of the RMB exchange rate in a long or short time period and the actual extent. The analysis of impulse response shows effect of the RMB exchange rate on employment growth is negative in the long term.In the long run, it is mainly due to exchange rate appreciation promotes the increase of import, and the ratio of capital in import rises ,then the path of technological progress effects and decrease the demand of labor.?The article points out that in June 2010 our country faces with different economic and political environment. The international pressure to revalue the RMB exchange rate will be greater. The export tax refund policy has exerted, the slow recovery of western developed countries will affect the increase of our foreign trade, and the mode of economic growth will change which won't favor the increase of foreign trade. This article gives suggestions about reducing the negative effect of the RMB appreciation and promoting the employment growth.