Working Paper: CEPR ID: DP18130
Authors: Paul Hubert; Frederique Savignac
Abstract: Using French matched administrative-survey data, we quantify the distributional effects of monetary policy on labor income and decompose the extensive and intensive margins of these effects. We find that the effects of ECB monetary policy shocks on labor income are U-shaped along the labor income distribution. Theseeffects are driven by the extensive margin (transitions out or to unemployment) at the bottom of the distribution and by the intensive margin (labor income changes for individuals continuously employed) at the top. We document that sectoralheterogeneity, especially related to the labor force composition, is crucial in explaining these heterogeneous effects.
Keywords: distributional effects; household heterogeneity; labor markets
JEL Codes: D1; E5; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expansionary monetary policy shock (10 basis points) (E49) | Increases labor income by 0.9% for the bottom 50% (J31) |
| Expansionary monetary policy shock (10 basis points) (E49) | Increases labor income by 0.6% for the top 10% (J31) |
| Expansionary monetary policy shock (10 basis points) (E49) | Lowers unemployment transition probability by 0.6 percentage points for the bottom 50% (J68) |
| Expansionary monetary policy shock (10 basis points) (E49) | Increases labor income by about 12% for top earners (J31) |
| Expansionary monetary policy shock (E49) | Increases labor income inequality (J79) |
| Sectoral characteristics and capital intensity (L60) | Influences transmission of monetary policy to labor income (E25) |
| Demographic factors (age and gender) (J21) | Contribute to heterogeneous effects of monetary policy (E19) |