The European Central Bank published Working Paper No 3046 by Alina Bobasu and Amalia Repele examining how employers shape the transmission of euro area monetary policy shocks to individual employment and labour income. Using German matched employer-employee administrative data from 1999 to 2018 combined with exogenously identified monetary policy surprises, the paper finds that firm characteristics matter differently across employment and wage adjustments, with implications for labour income inequality. Employment outcomes are more sensitive in young firms, while firm size does not materially differentiate employment responses. By contrast, wages in large firms react more to monetary policy shocks than wages in small firms, with pronounced asymmetry as wage responses are stronger in easing episodes; the differential wage effect is concentrated among above-median earners and is not explained solely by worker characteristics or institutional features such as collective bargaining or minimum wages. Firm-level analysis reported in the paper indicates similar investment and turnover responses across firm sizes but a different response in total wage bills, with stronger effects in firms using variable pay structures (including profit sharing), consistent with heterogeneous pass-through of firm conditions to wages. The distributional results suggest tightenings disproportionately disadvantage low-skilled and low-wage workers (on both employment and wage margins), while easings increase inequality primarily through larger wage gains for top earners, with overall inequality effects larger in easing periods.

Original source View in tracker