We study the distributional effects of a monetary policy-induced firm-level credit supply shock on individual wages and employment. To this end, we construct a novel dataset that links worker employment histories to firms' bank credit relationships in Germany. We document that firms in relationships with banks that were more exposed to the introduction of negative monetary policy rates in 2014 experience a relative reduction in credit supply. A negative credit supply shock in turn is associated with lower firm-level average wages and employment. These effects are concentrated among distinct worker groups within firms. Initially lower-paid workers are more likely to be fired, while initially higher-paid workers see relative wage declines. At the same time, wages fall by more at initially higher-paying firms. Consequently, wage inequality within and between firms decreases. Our results suggest that firm credit has important distributional consequences in the labor market.
Moser, Christian, Farzad Saidi, Benjamin Wirth, and Stefanie Wolter. "Credit Supply, Firms, and Earnings Inequality." Columbia Business School, June 30, 2020.
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