Exchange Rate Fluctuations and Labour Market Adjustments in Canadian Manufacturing Industries

Abstract: We estimate the link between exchange rate fluctuations and the labour input of Canadian manufacturing industries. The analysis is based on a dynamic model of labour demand and the econometric strategy employs a panel two-step approach for cointegrating regressions. Our data are drawn from a panel of 20 manufacturing industries from the KLEMS database and cover a long sample period that includes all cycles of appreciation and depreciation of the Canadian dollar over the last 50 years. Our results indicate that exchange rate fluctuations have significant long-term effects on the labour input of Canada's manufacturing industries, especially for trade-oriented industries, but that these long-term impacts materialize very gradually following shocks.

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