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Effects of monetary policy on labor income: the role of the employer

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  • Bobasu, Alina
  • Repele, Amalia

Abstract

This paper investigates the role of firms in the transmission of monetary policy to individual labor market outcomes, both the intensive and extensive margins. Using German matched employer-employee administrative data, we study the effects of monetary policy shocks on individual employment and labor income conditioning on the firm characteristics. First, we find that the employment of workers in young firms are especially sensitive to monetary policy shocks. Second, wages of workers in large firms react relatively more, with some pronounced asymmetries: differences between large and small firms are more evident during monetary policy easing. The differential wage response is driven by above-median workers and cannot be fully explained by a worker component. Notably, larger firms adjust wages more significantly despite experiencing similar changes in investment and turnover compared to smaller firms. Furthermore, monetary policy tightening disproportionately impacts low-skilled and low-wage earners, while easings amplify inequality due to substantial wage increases for top earners. Overall, the effect of monetary policy on inequalities is however larger in easing periods – driven by a large increase in wages for top earners. JEL Classification: E24, E52, E58

Suggested Citation

  • Bobasu, Alina & Repele, Amalia, 2025. "Effects of monetary policy on labor income: the role of the employer," Working Paper Series 3046, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253046
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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