QCGBF Virtual Seminar Series: Ester Faia: Monetary Policy and Wage Inequality: the Labour Mobility Channel

About the Event

The Qatar Centre for Global Banking & Finance welcomes Ester Faia from the University Frankfurt to present this virtual seminar.

Paper Abstract

In times of rising inequality, structural reallocation and widespread resignation we study the distributional consequences of monetary policy through labour market mobility. Using CPS monthly wage changes and occupational transitions we estimate the impact of high frequency identified monetary shocks through local projection methods and find that a tightening reduces inequality by affecting primarily separation rates of workers at the bottom of the income distribution, who are less likely to be re-employed.

Their exit from the labour force results in a mean preserving spread of the distribution that reduces wage dispersion. We then build a monetary model with uninsurable risk, agents heterogeneous in income risk, talents and wealth and in which participation and occupational allocation decisions take place through a period-by-period discrete choice optimization on value functions across occupations.The key novel transmission runs through the dependence of the transition probabilities on wealth and income.

Their decline, following a tightening, increases separation and reduces re-employment probabilities, more so for workers on the bottom of the income distribution, resulting in a mean preserving spread of the wage distribution.Model-based regressions for wage inequality and separation rates match the empirical counterparts. A more equal skill distribution, induced for instance by the education system, can overturn results by fostering mobility.

About the Speaker

Ester Faia holds a Chair in Monetary ad Fiscal Policy at Goethe University Frankfurt and is CEPR fellow. She received her Ph.d. from New York University and works in the area of macro-finance, macro-labour and monetary.