Heterogeneous labour market response to monetary policy: small versus large firms

Aarti Singh, Jacek Suda and Anastasia Zervou

No 2021-07, Working Papers from University of Sydney, School of Economics

Abstract: We study the effects of monetary policy shocks on the growth rates of hiring, employment and earnings of new hires across firms of different sizes. We find that contractionary and expansionary monetary policy shocks have different effects on hiring and employment growth for small and large firms. Relative to large firms, small firms are less responsive to contractionary monetary policy shocks while they are more responsive to expansionary shocks. We also find that, as a consequence of monetary policy shocks, the earnings of new hires changes, and this wage effect depends on the sign of the shock and the size of the firms. We use a heterogeneous firm model with a working capital constraint, an upward sloping marginal cost curve and a financial accelerator effect, and augment it with the wage effect. We find that our empirical results are consistent with the model as long as the combined effect due to varying steepness of the marginal cost curve and the wage effect is stronger than the financial accelerator channel.

Keywords: Heterogeneous firms; financing constraints; labour market; monetary policy (search for similar items in EconPapers)
Date: 2021-10, Revised 2021-11
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-lma, nep-mac and nep-mon
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Working Paper: Heterogeneous labor market response to monetary policy: small versus large firms (2023)
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