Credit Supply, Firms, and Earnings Inequality

Moser, Christian; Saidi, Farzad; Wirth, Benjamin; Wolter, Stefanie

doi:10.21034/iwp.128

Working Paper

Credit Supply, Firms, and Earnings Inequality

Abstract: We study the distributional consequences of monetary policy-induced credit supply in the German labor market. Firms in relationships with banks that are more exposed to the introduction of negative interest rates in 2014 experience a relative contraction in credit supply, associated with lower average wages. Within firms, initially lower-paid workers are more likely to leave employment, while initially higher-paid workers see a relative decline in wages. Between firms, wages fall by more at initially higher-paying employers. Our results suggest that credit affects the distribution of wages and employment both within and between firms.

JEL Classification: J31; E24; J23; E51;

https://doi.org/10.21034/iwp.128