The Heterogeneous Effects of Monetary Policy on Labor Income: Disentangling the Extensive and Intensive Margins

Abstract

Using French matched administrative-survey data, we quantify the distributional effects of monetary policy on labor income, decomposing the extensive and in-tensive margins of these effects. We provide evidence of heterogeneous exposure to unemployment and earnings risks. We find that the effects of ECB monetary policy shocks on labor income are driven by the extensive margin (transitions out of/to unemployment) at the bottom of the earnings distribution and by the intensive margin (changes in labor income for individuals continuously employed) at the top. Sectoral heterogeneity, particularly related to the labor force composition, plays an important role in explaining these heterogeneous effects.