Working Paper: CEPR ID: DP16549
Authors: Martina Jasova; Caterina Mendicino; Ettore Panetti; Jos Luis Peydr; Dominik Supera
Abstract: This paper documents the redistributive effects of monetary policy on labor market outcomes viathe credit channel. For identification, we exploit matched administrative datasets in Portugal- employee-employer and credit registers - and monetary policy since the Eurozone creationin 1999. We find that softer monetary policy improves worker labor market outcomes (wages,hours worked and firm employment) more in small and young firms, which are more financiallyconstrained. Within small and young firms, the wage effects accrue to incumbent workers,in line with the back-loaded wage mechanism. Consistent with the capital-skill complementaritymechanism, we document an increase in skill premium and show that financially constrainedfirms increase both physical and human capital investment by most. Our findings uncovera central role for both the firm-balance sheet and the bank lending channels of the monetarypolicy transmission to labor income inequality, with state-dependent effects that are substantiallystronger during crisis times. Importantly, we do not find any redistributive effects for firmswithout bank credit.
Keywords: Monetary Policy; Labor Income Inequality; Firm Balance Sheet Channel; Bank Lending Channel; Capital-Skill Complementarity
JEL Codes: D22; D31; E52; G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Softer monetary policy (E52) | Improved worker labor market outcomes (J68) |
| Softer monetary policy (E52) | Increase in wages for workers in small firms (J39) |
| Softer monetary policy (E52) | Increase in hours worked (J29) |
| Softer monetary policy (E52) | Increase in firm employment (J23) |
| Softer monetary policy (E52) | Increase in skill premium (J24) |
| Softer monetary policy (E52) | Increase in physical and human capital investment by financially constrained firms (D25) |
| Softer monetary policy (E52) | Effects are stronger during crisis periods (H12) |
| No access to bank credit (G21) | No redistributive effects (H23) |