This paper studies the differential impact of monetary policy on labor market responses for blacks and whites since the start of the Great Recession. We estimate and quantify these differences using a somewhat unconventional approach to identifying an expansionary monetary policy shock. At the long horizon, we find that black employment is more sensitive to changes in monetary policy than that of whites. However, at the short horizon, black employment falls, whereas white employment immediately increases. Owing to such disparities, one might expect the central bank to be deeply engaged in understanding the causal mechanisms at play. Moreover, our findings raise concern that recent monetary policy tightening may adversely affect blacks disproportionately to whites.
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For example, Fairlie and Sundstrom (1997), who examine trends in unemployment among black and white men from 1880 to 1990, document the persistence of the unemployment gap and offered up potential explanations.
There is a large empirical literature that studies demographic differences in employment. For example, Shulman (1991) focuses on black-white differences in the unemployment rate. Korenman and Okun (1989) examine gender differences in cyclical unemployment. In related work, Clark and Summers (1981) study cyclical employment fluctuations across race and age.
Hershbein and Kahn (2017) point out that skill requirements on job postings in different metropolitan statistical areas change depending on how hard their labor market was hit by the Great Recession. They also find that these differences are persistent and most pronounced in routine-cognitive occupations.
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Conflict of Interest
The authors declare that they have no conflict of interest.
Appendix 1. Forecast Error Variance Decomposition
Appendix 2. Cointegration and Unit Root Tests
There is evidence of cointegration; however, including many variables in a VAR can lead one to believe variables trend together when they really do not (Enders 2008). We decide against an error correction model in favor of the sign restriction model since it will allow us stronger identification.
Contrary to unit root tests results, we do not first difference the variables in the VAR. Instead, variables enter the system in levels, which provides a basis for comparing our results to others in the literature. Moreover, according to Stock and Watson (2003), researchers can rarely be sure whether a series has a stochastic trend or not, due to the low power associated with most unit root tests.
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Ume, E.S., Williams, M.J. The Differential Impact of Monetary Policy on Blacks and Whites since the Great Recession. J Econ Race Policy 2, 137–149 (2019). https://doi.org/10.1007/s41996-018-0010-z
- Monetary policy
- Labor market
- Sign restrictions