Monetary Policy, Labor Income Redistribution and the Credit Channel: Evidence from Matched Employer-Employee and Credit Registers

• Authors: José-Luis Peydró.
• BSE Working Paper: 112295 | April 22
• Keywords: monetary policy , capital-skill complementarity , bank lending channel , labor income inequality , firm balance sheet channel
• JEL codes: D22, D31, E52, G01, G21
• monetary policy
• capital-skill complementarity
• bank lending channel
• labor income inequality
• firm balance sheet channel

We document the heterogeneous effects of monetary policy on labor market outcomes via credit channel. Using employee-employer and credit registers in Portugal, we show that falling rates increase wages, hours worked and employment more in financially constrained small and young firms. Consistent with the capital-skill complementarity mechanism, we document an increase in the skill premium and show that financially constrained firms increase both physical and human capital investment the most. We uncover a central role of the credit channel with stronger state-dependent effects during crises. The effects are fully driven by firms with bank credit.