Adjustments of regular and non-regular workers to exogenous shocks: Evidence from exchange rate fluctuation

We investigate the heterogeneous adjustments of regular and non-regular workers exploiting the exchange rate fluctuation and heterogeneous dependence on international trade across firms as a source of exogenous variation. An analysis of panel data of Japanese manufacturers reveals that the appreciation of Japanese Yen spontaneously decreases the sales of exporters and the employment of non-regular workers, but it moderately reduces the employment of regular workers with a time lag. Firms relying heavily on exporting tend to implement more significant adjustments of non-regular employment in response to exchange rate shocks. This finding provides support for the claim that firms are likely to adjust non-regular workers to absorb exogenous shocks and to insulate regular workers from the shocks in an uncertain business environment.