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Monetary policy and the racial wage gap

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Abstract

This paper aims to clarify the relationship between monetary policy shocks and wage inequality. We emphasize the relevance of within- and between-wage-group inequalities in explaining total wage inequality in the USA. Relying on the quarterly data for the period 2000–2020, our analysis shows that racial disparities explain 12% of observed total wage inequality. Subsequently, we examine the role of monetary policy in wage inequality. We do not find compelling evidence that shows that monetary policy plays a role in exacerbating the racial wage gap. However, there is evidence that accommodative monetary policy plays a role in magnifying between-group wage inequalities but the impact occurs after 2008.

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Notes

  1. Interested reader is referred to www.atlantafed.org. for an exposition of current thought of the Fed on the subject.

  2. Note in calculating inequality measure these studies use income, which is the overall money one gets. Our study relied on the wage income for calculating the inequality index.

  3. As suggested by the referee, we have checked data on other points in the distribution and are able to confirm that our analysis and conclusions remain unaltered.

  4. Put differently, while inequality index takes the population size as given and fixed, the inequality measure is defined over all possible population sizes and wage distributions.

  5. For example, if \(y=(1,3,5,7,3)\), and y is partitioned into two sets \(y^{(1)}= (1, 3)\) and \(y^{(2)} = (5, 7, 3)\). The decomposability property implies that \(I(y) = \left( \frac{4}{19}\right) I(y^{(1)}) + \left( \frac{15}{19}\right) I(y^{(2)})+ I(2, 2, 5, 5, 5)\).

  6. http://www.bls.gov/news.release/pdf/wkyeng.pdf.

  7. The survey is conducted monthly for the BLS by the US Census Bureau using a scientifically selected national sample of about 60,000 eligible households, with coverage in all 50 states and the District of Columbia.

  8. Sample selection is driven by the availability of the data at quarterly frequency.

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Authors and Affiliations

  1. Feliciano School of Business, Montclair State University, Montclair, NJ, 07043, United States of America

    Edmond Berisha & Ram Sewak Dubey

  2. Collins College of Business, The University of Tulsa, Tulsa, OK, 74104, United States of America

    Eric Olson

Authors
  1. Edmond Berisha
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  2. Ram Sewak Dubey
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  3. Eric Olson
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Correspondence to Edmond Berisha.

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Berisha, E., Dubey, R.S. & Olson, E. Monetary policy and the racial wage gap. Empir Econ 63, 3045–3059 (2022). https://doi.org/10.1007/s00181-022-02233-5

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  • DOI: https://doi.org/10.1007/s00181-022-02233-5

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