Effects of Productive Heterogeneity and Different Exchange Rate Schemes on the Employment Cycle in Argentina

The aim of this paper is to examine the effect of different exchange rate schemes, alternative demand regimes and variable degrees of productive heterogeneity on employment volatility in Argentina over the last two decades. The main contribution lies in the theoretical development of a series of dynamic simultaneous equation models owing to different heterodox schools of thought (following the definition given by Foley and Taylor, 2004), to show the cyclical characteristics of employment that result from combining an unbalanced economic structure with the investment accelerator, the Keynesian multiplier, the class struggle and the open economy adjustment channels (financial and commercial). Our key research results emphasize that: 1) Convertibility plan increased employment volatility because of destabilizing financial channel effects overreacting the stabilizing commercial channel impact, and; 2) Post-Convertibility decreasing employment volatility could be explained by two alternative hypothesis: a.- the combination of a manage float exchange rate scheme (in parallel with capital flow controls) with a wage led demand regime (where both commercial and financial channels stabilize cyclical fluctuations), or; b.- the same monetary/exchange rate scheme in conjunction with a profit led demand regime, but only when financial channel stabilizing forces overweight the commercial channel destabilizing impact. Formal results suggest that the higher the productive heterogeneity, the lower the probability of the latter hypothesis to be theoretically sound.