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The heterogeneous impact of monetary policy on the US labor market

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  • Zens, Gregor
  • Böck, Maximilian
  • Zörner, Thomas O.

Abstract

We empirically investigate the role of central banks in the context of heterogeneous labor markets, jobless recoveries and job polarization. Specifically, we estimate the effect of monetary policy on the US labor market using disaggregated time series based on large scale survey data. The impact of interest rate changes on unemployment in 32 occupation groups is explored in a Bayesian factor-augmented vector autoregression framework. The results suggest largely heterogeneous impacts across various occupation groups. This heterogeneity can be explained by differential task profiles of the workers in their respective occupations. Workers with tasks that are easily automated or offshored as well as workers at the bottom of the skill distribution are disproportionately affected following a monetary policy shock. This implies that labor market participants that are highly vulnerable to structural developments such as skill-biased technological change and the globalization of labor markets are also most sensitive to conventional monetary policy measures. From a policy perspective, we conclude that central banks are unlikely to be able to take on a stabilizing role in the context of labor market polarization.

Suggested Citation

  • Zens, Gregor & Böck, Maximilian & Zörner, Thomas O., 2020. "The heterogeneous impact of monetary policy on the US labor market," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:dyncon:v:119:y:2020:i:c:s0165188920301573
    DOI: 10.1016/j.jedc.2020.103989
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    Cited by:

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    3. Fumitaka Nakamura & Nao Sudo & Yu Sugisaki, 2021. "Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers," IMES Discussion Paper Series 21-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Joshua Chan, 2023. "BVARs and Stochastic Volatility," Papers 2310.14438, arXiv.org.
    5. Marjan Petreski & Stefan Tanevski & Alejandro D. Jacobo, 2024. "Monetary Policy and the Gendered Labor Market Dynamics: Evidence from Developing Economies," Papers 2402.05729, arXiv.org.

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    More about this item

    Keywords

    Monetary policy; Job polarization; Jobless recoveries; Occupation-level; FAVAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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