Discussion paper

DP16123 Credit Supply, Firms, and Earnings Inequality

We study the distributional consequences of monetary policy-induced credit supply in the German labor market. Firms in relationships with banks that are more exposed to the introduction of negative interest rates in 2014 experience a relative contraction in credit supply, associated with lower average wages and employment. Within firms, initially lower-paid workers are more likely to leave employment, while initially higher-paid workers see a relative decline in wages. Between firms, wages fall by more at initially higher-paying employers. Therefore, credit affects the distribution of pay and employment in line with predictions of an equilibrium model with credit and search frictions.


Moser, C, F Saidi, B Wirth and S Wolter (2022), ‘DP16123 Credit Supply, Firms, and Earnings Inequality‘, CEPR Discussion Paper No. 16123. CEPR Press, Paris & London. https://cepr.org/publications/dp16123