Monetary Policy, Labor Income Redistribution and the Credit Channel: Evidence from Matched Employer-Employee and Credit Registers

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111722-WP-Monetary Policy, Labor Income Redistribution and the Credit Channel-Evidence from Matched Employer-Employee and Credit Registers-Jasova, Mendicino, Panetti, Peydró, and Supera

Martina Jasova, Barnard College
Caterina Mendicino, European Central Bank
Ettore Panetti, University of Naples Federico II
José-Luis Peydró, Imperial College London
Dominik Supera, Columbia University


We document the redistributive effects of monetary policy on labor market outcomes via the credit channel. For identification, we exploit matched administrative datasets in Portugal – employee-employer and credit registers – and monetary policy since the Eurozone creation. We find that softer monetary policy improves wages, hours worked and employment more in small and young firms, which are more financially constrained. Within these firms, the wage effects accrue to incumbent workers, in line with the back-loaded wage mechanism. Consistent with the capital-skill complementarity mechanism, we document an increase in the skill premium and show that financially constrained firms increase both physical and human capital investment the most. Our findings uncover a central role for the firm-balance sheet and the bank lending channels of the monetary policy transmission to labor income inequality, with state-dependent effects that are stronger during crises. Importantly, we do not find any redistributive effects for firms without bank credit.


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