Manufacturing Employment and Exchange Ratesin the Portuguese Economy: The Role ofOpenness, Technology and Labour Market Rigidity

In this paper, we explore empirically the role of openness, technology and labour marketrigidity in the determination of the effect of the exchange rate on employment in Portugal. Wedevelop an index that allows us to measure labour market flexibility at the sector level. Thisindex shows that labour market flexibility has been increasing in all manufacturing sectorsand that the labour market in high technology sectors is more flexible than in low technologysectors. We use this index in the estimation of an employment regression, focusing on theeffect of exchange rate movements. Our estimates indicate that employment in lowtechnologysectors, with a high degree of trade openness and facing less rigidity in the labourmarket are more sensitive to movements in exchange rates...