Stefano Di Bucchianico, University of Salerno

Monetary policy effects on wage inequality: evidence from Italy

Abstract

This study examines the impact of monetary policy on wage inequality in Italy over the period 1999–2018, using a newly assembled dataset based on high-frequency administrative records of private-sector employees from the Italian Social Security Institute. Applying the Smooth Local Projection method, we estimate the impulse responses of average wages, the Gini index of wage inequality, and other measures of the wage distribution to exogenous monetary policy shocks. Our findings show that expansionary monetary policy significantly reduces wage inequality while stimulating economic activity. This aggregate effect is mainly driven by the gains reaped by workers in the medium-low segments of the wage distribution. However, when distinguishing worker subgroups by occupation and firm size, we find evidence of heterogeneous effects. Expansionary monetary shocks particularly benefit blue-collar workers and those employed in medium-small firms. By contrast, workers in the lowest percentiles are penalized by the spread of part-time contracts, which significantly curbs the positive wage response to easing monetary shocks.