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Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth

Author

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  • Nittai Bergman
  • Benjamin Born
  • David A. Matsa
  • Michael Weber
Abstract
This paper analyzes the heterogeneous effects of monetary policy on workers with differing levels of labor-force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show the employment of populations with lower labor-force attachment—Blacks, high school dropouts, and women—is more responsive to expansionary monetary policy in tighter labor markets. The effect builds up over time and is long-lasting. We replicate these results in a New Keynesian model with heterogeneous workers. In the model, expansionary monetary shocks lead to larger increases in the employment of less attached workers when the central bank follows a more dovish monetary policy and when the Phillips curve is flatter. These findings suggest that a more hawkish monetary policy especially hurts the employment prospects of workers with lower labor force attachment.

Suggested Citation

  • Nittai Bergman & Benjamin Born & David A. Matsa & Michael Weber, 2022. "Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth," NBER Working Papers 29651, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29651
    Note: AP CF LS ME
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    2. Hubert, Paul & Savignac, Frederique, 2023. "Monetary Policy and Labor Income Inequality: the Role of Extensive and Intensive Margins," CEPR Discussion Papers 18130, C.E.P.R. Discussion Papers.
    3. Serafin Frache & Rodrigo Lluberas & Mathieu Pedemonte & Javier Turen, 2023. "The Transmission of International Monetary Policy Shocks on Firms' Expectations," Working Papers 23-01, Federal Reserve Bank of Cleveland.
    4. Gulyas, Andreas & Meier, Matthias & Ryzhenkov, Mykola, 2024. "Labor market effects of monetary policy across workers and firms," European Economic Review, Elsevier, vol. 166(C).
    5. Marco Bellifemine & Adrien Couturier & Rustam Jamilov, 2023. "The Regional Keynesian Cross," Discussion Papers 2311, Centre for Macroeconomics (CFM).
    6. Mohammed Ait Lahcen & Garth Baughman & Hugo van Buggenum, 2023. "Racial Unemployment Gaps and the Disparate Impact of the Inflation Tax," Opportunity and Inclusive Growth Institute Working Papers 073, Federal Reserve Bank of Minneapolis.
    7. Dobrew, Michael & Gerke, Rafael & Giesen, Sebastian & Röttger, Joost, 2023. "Make-up strategies with incomplete markets and bounded rationality," Discussion Papers 01/2023, Deutsche Bundesbank.
    8. Anastasia Burya & Rui Mano & Mr. Yannick Timmer & Miss Anke Weber, 2022. "Monetary Policy Under Labor Market Power," IMF Working Papers 2022/128, International Monetary Fund.
    9. Marco Bellifemine & Adrien Couturier & Rustam Jamilov, 2022. "The Regional Keynesian Cross," Economics Series Working Papers 995, University of Oxford, Department of Economics.
    10. Dossche, Maarten & Kolndrekaj, Aleksandra & Propst, Maximilian & Ramos Perez, Javier & Slacalek, Jiri, 2022. "Immigrants and the distribution of income and wealth in the euro area: first facts and implications for monetary policy," Working Paper Series 2719, European Central Bank.

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    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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