Skill-Biased Technological Change and the Real Exchange Rate

Arbeitspapier

We sketch a model that shows how skill-biased technological change may reverse the classic Balassa-Samuelson effect, leading to a negative relationship between the productivity in the tradable sector and the real exchange rate. In a small open economy, export goods are produced with capital, high-skilled and low-skilled labor, and traded for imported consumption goods. Non-tradable services are produced with low-skilled labor only. A rise in the productivity of capital has two effects: (1) It may reduce the demand for labor in the tradable sector if the substitutability of low-skilled labor and capital in the tradable sector is high; and (2) it increases the demand for non-tradables and its labor input. Overall demand for low-skilled labor declines if the labor force of the tradable sector is large relative to the labor force of the non-tradable sector. This leads to lower wages and thus to lower prices and a real exchange rate depreciation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WWZ Discussion Paper ; No. 2012/08

Classification and Topics

• Classification: Wirtschaft ; Trade and Labor Market Interactions ; Foreign Exchange ; Open Economy Macroeconomics ; Human Capital; Skills; Occupational Choice; Labor Productivity
• Subject: Real Exchange Rate ; Balassa-Samuelson Hypothesis ; Skill-biased Technological Change ; General Equilibrium ; Kaufkraftparität ; Balassa-Samuelson-Effekt ; Technischer Fortschritt ; Humankapital ; Allgemeines Gleichgewicht ; Mehrsektoren-Modell ; Kleine offene Volkswirtschaft ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gubler, Matthias ; Sax, Christoph
• Event: Veröffentlichung
• (who): University of Basel, Center of Business and Economics (WWZ)
• (where): Basel
• (when): 2012

Further information

• DOI: doi:10.5451/unibas-ep61599
• Handle: http://hdl.handle.net/10419/123433
• Last update: 10.03.2025, 11:42 AM CET