The Employment Concentration Channel of Monetary Policy

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.