The Employment Concentration Channel of Monetary Policy

Guido Ascari, Andrea Colciago and Marco Membretti

No 21391, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Under monetary tightenings, employment at small, high-churn firms contracts more than at large incumbents, raising the employment share of large firms. A mixed-frequency BVAR on U.S. data (1982–2018) shows that tightenings reduce firm entry and new-entrant hiring, severing inflows into small firms, while higher exit destroys small-firm employment. Large incumbents are comparatively insulated, rarely exiting and exhibiting weak sensitivity to entry conditions. This mechanism raises employment concentration, defining an employment concentration channel of monetary policy. An estimated structural model with heterogeneous firms, endogenous entry and exit, and equilibrium unemployment matches this effect, showing that the concentration channel is quantitatively important in accounting for the empirical output-inflation trade-off.

Keywords: Monetary policy; employment concentration; Unemployment; Heterogeneous firms; Bvar (search for similar items in EconPapers)
JEL-codes: C13 E32 E52 (search for similar items in EconPapers)
Date: 2026-04
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