Labour Market Effects of Currency Appreciation: The Case of Switzerland

Abstract

Recent work on labour market effects of globalization has generated both academic and populist interests. However, this work has focussed exclusively on the manufacturing sector. Moreover, general equilibrium effects of globalization have received little attention. This study contributes to filling both these gaps by examining the general equilibrium effects of external exposure on the labor market in Switzerland. We exploit exogenous exchange rate movements to identify trade-induced shocks across all sectors of the Swiss economy and transpose industry-level exposure to the municipal level, using detailed employment data on the entirety of Swiss firms. We find strong evidence for three channels of employment effects of currency appreciation-negative employment growth induced by increasing export uncompetitiveness and higher import competition, and positive employment growth induced by cheaper availability of foreign inputs. The combined average effect of the three channels on employment is found to be negative in our preferred results, with significant heterogeneity across municipalities.

Trade Competition and Migration: Evidence from the Quartz Crisis

“…Between 1970 and 1974, its price nearly doubled, and by 1980 it had increased by more than 500 percent (appendix figure A5). All of these factors coincided with a global recessionary environment 15 Examining a variety of industries over different time periods, Corpataux, Crevoisier and Thierstein (2002), Auer and Saure (2012), Fauceglia, Shingal and Wermelinger (2014), and Egger, Schwarzer and Shingal (2018) have all found evidence that the strength of the Swiss franc has a substantial impact on export performance. that reduced demand for consumer durables broadly and luxury goods in particular.…”