Monetary Policy Effects on Wage Inequality Between and Within Firms

Christian Moser, Benjamin Wirth and Farzad Saidi
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Benjamin Wirth: IAB Nuremberg
Farzad Saidi: Stockholm School of Economics

No 1035, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We study pass-through of negative interest rates to workers’ wages in the European currency union from 2014-16. To this end, we construct a novel dataset combining ad- ministrative linked employer-employee (IAB-LIAB) data with proprietary syndicated loans (Dealscan) and executive compensation (BoardEx) data from Germany. To identify monetary policy effects on wage inequality between and within firms, we exploit the interaction of nominal interest rate movements around the zero lower bound with variation in pre-determined balance sheet exposure of banks and their lending relations with firms. We find significant increases in credit supply of affected banks, leading to increased within-firm inequality. The results are driven by executives and highest- paid employees reaping relatively greater benefits from positive firm-level credit supply shocks. At the same time, low-paying firms increase their average pay in response to easier credit access.

Date: 2018
New Economics Papers: this item is included in nep-eur and nep-mac
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