The Impact of Real Exchange Rate on Employment in Albania

Unemployment is a huge economical and social issue for each country, in particular for Albania, which is a country that comes from a centralized system where the state ensured full employment. In the struggle of applying the transition to market economy, each government had to face the two-digit levels of unemployment. Because of this, the application of the right policies in order to decrease the level of unemployment has been in the center of the program of each government in Albania. The objective of this paper is to show if the undervaluation or overvaluation of the real exchange rate can affect in a significant way the level of employment in Albania and that to answer the question, if the real exchange rate can be used as a political instrument for the reduction of the level of unemployment. To evaluate the link between the real exchange rate and the level of employment the Johansen procedure and Vector Error Correction Term method is used. The result of the study demonstrates about an influence that is statistically not important of the real exchange rate over the level of employment, suggesting that the increase of competition of the country through the real exchange rate doesn’t improve the condition of the employment in Albania