Discussion paper

DP18130 Monetary Policy and Labor Income Inequality: the Role of Extensive and Intensive Margins

Using French matched administrative-survey data, we quantify the distributional effects of monetary policy on labor income and decompose the extensive and intensive margins of these effects. We find that the effects of ECB monetary policy shocks on labor income are U-shaped along the labor income distribution. These
effects are driven by the extensive margin (transitions out or to unemployment) at the bottom of the distribution and by the intensive margin (labor income changes for individuals continuously employed) at the top. We document that sectoral
heterogeneity, especially related to the labor force composition, is crucial in explaining these heterogeneous effects.

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Citation

Hubert, P and F Savignac (2023), ‘DP18130 Monetary Policy and Labor Income Inequality: the Role of Extensive and Intensive Margins‘, CEPR Discussion Paper No. 18130. CEPR Press, Paris & London. https://cepr.org/publications/dp18130