Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Matthias Gubler
Author-Name-First: Matthias
Author-Name-Last: Gubler
Author-Person: pgu469
Author-Name: Christoph Sax
Author-Name-First: Christoph
Author-Name-Last: Sax
Title: Skill-Biased Technological Change and the Real Exchange Rate
Abstract: We sketch a model that shows how skill-biased technological change may reverse the classic Balassa-Samuelson effect, leading to a negative relationship between productivity in the tradable sector and the real exchange rate. In a small open economy, export goods are produced with high-skilled labor, in conjunction with capital and low-skilled labor, and are 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 associated 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 real exchange rate depreciation.  
Length: 37 pages
Creation-Date: 2014
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2014/working_paper_2014_09
File-Format: text/html
Number: 2014-09
Classification-JEL: F16, F31, F41, J24
Keywords: Real Exchange Rate, Balassa-Samuelson Hypothesis, Skill-Biased Technological Change, General Equilibrium
Handle: RePEc:snb:snbwpa:2014-09