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The Employment Concentration Channel of Monetary Policy

Author

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  • Guido Ascari
  • Andrea Colciago
  • Marco Membretti

Abstract

Under monetary tightenings, employment at small, high-churn firms con-tracts more than at large incumbents, raising the employment share of large firms. A mixed-frequency BVAR on U.S. data (1983–2018) shows that tight-enings reduce firm entry and new-entrant hiring, severing inflows into small firms, while higher exit destroys small-firm employment. Large incumbents are comparatively insulated, rarely exiting and exhibiting weak sensitivity to entry conditions. This mechanism raises employment concentration, defining an em-ployment concentration channel of monetary policy. An estimated structural model with heterogeneous firms, endogenous entry and exit, and equilibrium unemployment matches this effect, showing that the concentration channel is quantitatively important in accounting for the empirical output-inflation trade-off.

Suggested Citation

  • Guido Ascari & Andrea Colciago & Marco Membretti, 2026. "The Employment Concentration Channel of Monetary Policy," Working Papers 859, DNB.
    • Handle: RePEc:dnb:dnbwpp:859
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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