DP16549 Monetary Policy, Labor Income Redistribution and the Credit Channel: Evidence from Matched Employer-Employee and Credit Registers
This paper documents 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
in 1999. We find that softer monetary policy improves worker labor market outcomes (wages,
hours worked and firm employment) more in small and young firms, which are more financially
constrained. Within small and young 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 skill premium and show that financially constrained
firms increase both physical and human capital investment by most. Our findings uncover
a central role for both the firm-balance sheet and the bank lending channels of the monetary
policy transmission to labor income inequality, with state-dependent effects that are substantially
stronger during crisis times. Importantly, we do not find any redistributive effects for firms
without bank credit.
