The Impact Of Exchange Rate Movement On Manufacturing Employment In China

Exchange rate is the relative price of one country’s currency to another country’scurrency. The movement of the exchange rate reflects the purchasing power of onecountry to another. Full employment is one of the four goals of nationalmicroeconomic policy. Employment is not only an economic problem, but also a socialproblem. The movement of exchange rate affects the relative price of export productsand import products, and changes the input and output of export enterprises and importenterprises, then affects company’s profits and the market competitiveness, leading theenterprises to reduce or expand the scale of production, thus affluences the labordemand and the social employment conditions.This paper is based on the domestic and foreign researches, followed by anin-depth exploration of its further studies. On the basis of the previous researches, thepaper makes a systematic expatiation on how exchange rate affects the labor demandand the labor supply, finding that exchange rate has impacts on labor supply throughincome effect and institution effect, but for labor demand, there are there types oftransmission mechanisms. In the short run, transmission mechanism of trade plays aleading role. In a longer term, transmission mechanism of resource allocation serves asignificant function. In the long run, transmission mechanism of production mode andlabor productivity occupies the dominant position. Finally, this paper establishes adynamic labor equilibrium model of exchange rate influencing labor demand and laborsupply, then taking the data, which is derived from subdivision sectors ofmanufacturing industry, to carry out empirical analysis. The empirical results show that:the four main factors, affect employment, are real GDP, the real effective exchange rate,export accounted for the proportion of industry output and the real effective exchangerate multiplied by export accounted for the proportion of industry output. The appreciation of the RMB inhibits the growth of the domestic employment. Meanwhile,with the improvement of the degree of openness, exchange rate influences theemployment bigger. Therefore, in the context of the appreciation of the RMB, it issignificant to strengthen the risk control of exchange rate movement on employment.