Monetary Policy and Racial Differentials in Labor Market Outcomes

Abstract This paper examines the empirical relationship between monetary policy and racial and ethnic labor market outcomes. Estimating structural vector autoregressions with external instruments, we find a much larger response of labor outcome gaps than has been documented in previous literature. These differential outcomes persist for Black workers of both sexes even within the same age group and level of educational attainment, while Hispanic and white responses are similar within such groupings. Estimates based on individual-level data show that differences in demographic characteristics account for a large portion of the response of Hispanic-white employment gaps to economic downturns, but not of Black-white employment gaps. Our results suggest that monetary policy contractions may have a substantially disparate effect on Black and Hispanic workers. JEL classifications: E52, J15