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Adjustments of regular and non-regular workers to exogenous shocks: Evidence from exchange rate fluctuation

March 5, 2018
Izumi Yokoyama*1
Kazuhito Higa*2
Daiji Kawaguchi*3


We investigate the heterogeneous adjustments of regular and non-regular workers exploiting the exchange rate fluctuation and heterogeneous dependence on international trade across firms as a source of exogenous variation. An analysis of panel data of Japanese manufacturers reveals that the appreciation of Japanese Yen spontaneously decreases the sales of exporters and the employment of non-regular workers, but it moderately reduces the employment of regular workers with a time lag. Firms relying heavily on exporting tend to implement more significant adjustments of non-regular employment in response to exchange rate shocks. This finding provides support for the claim that firms are likely to adjust non-regular workers to absorb exogenous shocks and to insulate regular workers from the shocks in an uncertain business environment.

JEL Classification
E24; F16; F31

Exchange Rate; Permanent Shocks; Temporary Shocks

This paper is a part of the research program, "The Changing Japanese Labor Market: A perspective and desirable policy responses," of the Research Institute of Economy, Trade and Industry (RIETI). We thank Daniel Hamermesh, Takashi Kano, Takao Kato, and Masayuki Morikawa, as well as participants in seminars at RIETI, Hitotsubashi, Keio, and IZA, for their comments. This paper was presented at the Seventh Joint Conference Organized by the University of Tokyo Center for Advanced Research in Finance and the Bank of Japan Research and Statistics Department. We thank Hibiki Ichiue, the formal discussant at the conference, for thoughtful comments.

  1. *1Graduate School of Economics, Hitotsubashi University
  2. *2Economic and Social Research Institute, Cabinet Office
  3. *3Graduate School of Economics, University of Tokyo


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