Does labor composition impact the transmission of monetary policy to output?

Raja Reddy Bujunoori, Nithin Mannil and Prasanna Tantri

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We ask whether the presence of contract workers influences the sensitivity of firm output to monetary policy shocks. We use a judgment of the Supreme Court of India that facilitated the hiring of contract workers as a setting that exogenously increased their presence, especially in states with stringent labor laws. Difference-in-differences and triple-difference tests show that the sensitivity of output to monetary policy shocks moderates due to the presence of contract workers. The relative flexibility of contract workers’ wages and not the relative ease of hiring/firing is the mechanism. Additional analysis shows that the moderation in output sensitivity is stronger during monetary contractions.

Keywords: contract workers; monetary policy transmission; wage rigidity (search for similar items in EconPapers)
JEL-codes: J31 J53 L24 (search for similar items in EconPapers)
Date: 2024-03-01
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Published in Journal of Development Economics, 1, March, 2024, 167. ISSN: 0304-3878

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