Discussion Paper Series 2021-E-6

Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers

Fumitaka Nakamura, Nao Sudo, Yu Sugisaki

We study how monetary policy affects the labor status of people of different ages and genders using Japanese data from the late 1990s to the late 2010s, with monetary policy shocks identified using high frequency market data. We first show that expansionary monetary policy shocks reduce the unemployment rate of all ages in both genders by almost the same amount. We then show that the impacts of these shocks are starkly different across ages in terms of changes in the labor force and number of employed. Expansionary monetary policy shocks cause the non-labor force of young and elderly people to join the labor force, leading to an increase in the number of employed of these age groups, leaving the middle-aged less affected. Our findings are consistent with the view that changes in the labor force participation rate play a role in determining the degree of labor market slack for specific ages.

Keywords: Monetary policy; Age structure; Labor market slack; Wage Phillips curve; High frequency identification

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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