Heterogeneity in labor market response to monetary policy: small versus large firms

72 Pages Posted: 11 Oct 2021 Last revised: 10 Nov 2023

See all articles by Aarti Singh

Aarti Singh

The University of Sydney - School of Economics

Jacek Suda

National Bank of Poland

Anastasia Zervou

University of Texas at Austin

Date Written: October 7, 2021

Abstract

We study the effects of monetary policy on the labor market in small and large firms in the U.S. We find that a monetary contraction reduces small firms’ employment and hiring growth less than in large firms while a monetary expansion boosts employment and hiring growth in small firms more than in large firms. Disregarding this asymmetry can lead to the erroneous conclusion that small firms respond stronger compared to large firms. We also find that the earnings growth of new hires decreases after monetary contractions and expansions. Incorporating this effect in a standard model can reconcile our empirical results.

Keywords: Heterogeneous firms, financing constraints, labour market, monetary policy

JEL Classification: D22, E24, E52, J23, L25

Suggested Citation

Singh, Aarti and Suda, Jacek and Zervou, Anastasia, Heterogeneity in labor market response to monetary policy: small versus large firms (October 7, 2021). Available at SSRN: https://ssrn.com/abstract=3938544 or http://dx.doi.org/10.2139/ssrn.3938544

Aarti Singh (Contact Author)

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://sydney.edu.au/arts/economics/staff/academic/aarti_singh.shtml

Jacek Suda

National Bank of Poland ( email )

00-919 Warsaw
Poland

Anastasia Zervou

University of Texas at Austin ( email )

6906 N Loop 1604 W
San Antonio, TX Texas 78249
United States

HOME PAGE: http://https://liberalarts.utexas.edu/economics/faculty/az7379

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