Credit Supply, Firms, and Earnings Inequality
56 Pages Posted: 4 Jun 2020 Last revised: 30 Jun 2020
Date Written: June 29, 2020
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.
Keywords: Credit Supply, Passthrough, Employment, Wages, Earnings Inequality, Worker and Firm Heterogeneity, Linked Employer-Employee Data, Bank Relationships, Monetary Policy, Negative Interest Rates
JEL Classification: J31, E24, J23, G21, E51
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