Exchange rate risk and the skill composition of labor

This paper uses matched employer-employee data covering the universe of Swedish private sector firms 1998-2014 to examine the links between exchange rate risk and the skill composition of labor in firms. We use firm x export destination and firm x import origin data to calculate firm-level measures of real exchange rate risk and real effective exchange rates. Our main result is that firms facing higher exchange rate risk employ a higher share of skilled labor and that the effect is especially marked among trade intensive firms in manufacturing and in firms with fewer than 50 employees. This finding is consistent with theoretical models of flexible work systems that require higher skill levels as a way of responding to higher risk.