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The Disparate Labor Market Impacts of Monetary Policy.

October 2003

Seth B. Carpenter, Board of Governors of the Federal Reserve System. William M. Rodgers III, Rutgers, The State University of New Jersey and John J. Heldrich Center for Workforce Development.

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Employing two widely used approaches to identify the impacts of monetary policy, this paper explores the differential impact of policy on the labor market outcomes of teenagers, minorities, out-ofschool youth, and less-skilled individuals. Evidence from recursive VARs and ADL models that use information on contractionary initiatives by the Federal Reserve indicate that the employment-population ratio of minorities is more sensitive to contractionary monetary policy than that of whites, primarily falling due to an increase in unemployment and not a decline in labor force participation. Monetary policy appears to have a disproportionate effect on the unemployment rate of teenagers, particularly African American teenagers. Their employment-population ratios fall due to increased difficulty in obtaining employment. The larger responses are not due to their higher likelihood of being employed in industries and occupations that are more sensitive to contractionary monetary policy.
Keywords: Monetary Policy Federal Funds Rate Labor Market Outcomes Teenagers, African Americans, Hispanics, and Out-of-School Youth

Employment, Unemployment, and the Labor Market