Employment and Wage Effects of RMB Exchange Rate for Manufacturing Sectors in China and the US*
By creating a labor market dynamic general equilibrium model, this paper derives the pass-through mechanism of exchange rate’s employment and wage effects, carries out an empirical study on the employment and wage effects of RMB exchange rate for manufacturing sectors in China and the United States based on ridge regression, and examines the role of industry characteristics in this process. Research findings suggest that: RMB depreciation will drive employment and wage growth for most of China’s laborintensive manufacturing sectors, and RMB appreciation will increase employment for certain capital- and technology-intensive sectors; but RMB depreciation has insignificant employment and wage effects for most sectors in the US. Hence, in achieving the longterm stability of RMB exchange rate, China should take advantage of RMB appreciation’s manufacturing upgrade effect and ensure the steady growth of manufacturing employment. The US should make breakthroughs in various links of its economic development in order to tackle unemployment, instead of blaming RMB exchange rate. In addition, the nature of business activities and trade union characteristic are both significant factors that lead to differences in inter-sector employment levels of Chinese and US manufacturing sectors. Technology characteristic and other monopolistic characteristics exert decisive effects on the difference of wage return for various sectors in China and the US.
RMB exchange rate, manufacturing sectors, industrial upgrade, industry characteristics
JEL Classification Codes: L60, J23, J31
There has been a long simmering debate between China and the United States over exchange rates. The US blamed China for taking advantage of undervalued RMB exchange rate to gain an upper hand in manufacturing trade, which led to shrinking traditional manufacturing sectors and job losses in the US. Early when as Republican presidential candidate running for the US presidency, Donald Trump vowed on many occasions to list China as a currency manipulator and impose a 45% tariff on goods imported from China to create more jobs for the US. In the foreseeable future, China-US exchange rate spat will continue to ferment, giving rise to bilateral trade frictions centering on RMB exchange rate.