Research On The Relationship Between RMB Exchange Rate Volatility And Manufacturing Industry Employment

Exchange rate is the relative price between two countries’ currencies, its volatility reflects the relative change of one country’s purchasing power and has an influence on balance of international payments as well as other macroeconomic indicators, such as economic growth, inflation and employment. In recent years, the labor force of China grow at a faster rate, so full employment, one of the four macroeconomic targets, is getting more and more attention from the government. China’s economic status is steadily rising under the circumstance of economic globalization, prosperous international trade lead to the world’s high attention on RMB exchange rate policies and China’s economic state. RMB exchange rate became an important factor on economic development and foreign relations. In 2005, China’s government announced that new measures on foreign exchange control will be implemented. RMB exchange rate formation mechanism transformed into floating rate system which refers to a basket of currencies and enable to reflect the supply and demand in foreign exchange market compares to the fixed peg to the dollar system. RMB exchange rate is on the rise until recent months after the reform, the flucatuation of exchange rate has an effect on economic development through import, export and FDI, which will affect enterprise decesion on production factors, like the labor factor, and production scale.This paper based on the purpose of exploring the relations between exchange rate volatility and employment. After summarizing many related literature, we established a research direction. In the next part, we introduced the development of RMB exchange rate and the state of China’s empolyment. Then we analyzed the transmission mechanism between exchange rate volatility and employment, got three channels, the technological channel, the import and export channel and the efficiency channel, and set a model of exchange rate volatility influencing labor demand and labor supply. Next, we used the data of manufacturing industry from 1994 to 2013 to make an empirical analysis, and concluded a quantized relation through unit root test,cointegration test, error correction model. At last, we came to a conclusion and put forward some advices on improving China’s manufacturing employment.