Discussion paper

DP16123 Credit Supply, Firms, and Earnings Inequality

We study the distributional consequences of monetary policy-induced credit supply in the German labor market. Firms in relationships with banks that are more exposed to the introduction of negative interest rates in 2014 experience a relative contraction in credit supply, associated with lower average wages and employment. Within firms, initially lower-paid workers are more likely to leave employment, while initially higher-paid workers see a relative decline in wages. Between firms, wages fall by more at initially higher-paying employers. Therefore, credit affects the distribution of pay and employment in line with predictions of an equilibrium model with credit and search frictions.

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Citation

Moser, C, F Saidi, B Wirth and S Wolter (eds) (2022), “DP16123 Credit Supply, Firms, and Earnings Inequality”, CEPR Press Discussion Paper No. 16123. https://new.cepr.org/publications/dp16123