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Do Greasy Wheels Curb Inequality?

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  • Cynthia Doniger

    (Federal Reserve Board)

Abstract

I document a disparity in the cyclically of the allocative wage - the labor costs considered when deciding to form or dissolve an employment relationship - across levels of educational attainment. Specifically, workers with college or more exhibit an allocative wage that is highly pro-cyclical while high school dropouts exhibit no statistically discernible cyclical pattern. I also assess the response to monetary policy shocks of both employment and allocative wages across education groups. The less educated respond to monetary policy shocks on the employment margin while more educated respond on the wage margin. An important takeaway: conventional monetary policy easing reduces employment inequality but increases wage inequality. I embed thesefindings in a New Keynesian framework including price and heterogeneous wage rigidity and show that heterogeneity results in welfare losses resulting from fluctuations that exceed those of the output-gap and price-level equivalent representative agent economy. The excess welfare loss is borne by the least educated. An implication is that the welfare performance of a Taylor-type rule can be improved by including a feedback on the unemployment gap which overweights the unemployment gap.

Suggested Citation

  • Cynthia Doniger, 2019. "Do Greasy Wheels Curb Inequality?," 2019 Meeting Papers 1163, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1163
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    Cited by:

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    2. Mario Giarda, 2021. "The Labor Earnings Gap, Heterogeneous Wage Phillips Curves, and Monetary Policy," Working Papers Central Bank of Chile 934, Central Bank of Chile.
    3. Stephanie R. Aaronson & Mary C. Daly & William L. Wascher & David W. Wilcox, 2019. "Okun Revisited: Who Benefits Most from a Strong Economy?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(1 (Spring), pages 333-404.
    4. Uroš Herman & Matija Lozej, 2023. "Who Gets Jobs Matters: Monetary Policy and the Labour Market in HANK and SAM," Working Papers halshs-04328572, HAL.
    5. Ran Gu, 2023. "Human Capital and the Business Cycle Effects on the Postgraduate Wage Premium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 345-376, April.
    6. Jonathon Hazell & Bledi Taska, 2020. "Downward Rigidity in the Wage for New Hires," Discussion Papers 2028, Centre for Macroeconomics (CFM).
    7. Kilman, Josefin, 2020. "Monetary Policy and Income Inequality in the United States: The Role of Labor Unions," Working Papers 2020:10, Lund University, Department of Economics, revised 20 Sep 2022.
    8. Gu, Ran, 2019. "Specific Human Capital and Real Wage Cyclicality: An Application to Postgraduate Wage Premium," MPRA Paper 98027, University Library of Munich, Germany.
    9. Kilman, Josefin, 2022. "Monetary Policy Shocks for Sweden," Working Papers 2022:18, Lund University, Department of Economics.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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