{"title":"Monetary policy, labor force participation, and wage rigidity","authors":"Yuto Iwasaki , Hiroyuki Kubota , Ichiro Muto , Mototsugu Shintani","doi":"10.1016/j.jedc.2025.105085","DOIUrl":null,"url":null,"abstract":"<div><div>To understand the role of monetary policy in determining the labor force participation rate, we present empirical evidence for Japan and the US. The data suggests that labor force participation declines in Japan but temporarily increases in the US in response to a monetary tightening. To inspect the mechanism, we develop and estimate a New Keynesian model of endogenous labor force participation decisions incorporating wage rigidity. We find that the opposite response of labor force participation can be attributed to a difference in the degree of wage rigidity. Counterfactual analysis based on the estimated models shows that the large-scale monetary easing in recent years helped boost the labor force participation rate in Japan, while its effect was almost neutral in the US.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105085"},"PeriodicalIF":1.9000,"publicationDate":"2025-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Dynamics & Control","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S016518892500051X","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
To understand the role of monetary policy in determining the labor force participation rate, we present empirical evidence for Japan and the US. The data suggests that labor force participation declines in Japan but temporarily increases in the US in response to a monetary tightening. To inspect the mechanism, we develop and estimate a New Keynesian model of endogenous labor force participation decisions incorporating wage rigidity. We find that the opposite response of labor force participation can be attributed to a difference in the degree of wage rigidity. Counterfactual analysis based on the estimated models shows that the large-scale monetary easing in recent years helped boost the labor force participation rate in Japan, while its effect was almost neutral in the US.
期刊介绍:
The journal provides an outlet for publication of research concerning all theoretical and empirical aspects of economic dynamics and control as well as the development and use of computational methods in economics and finance. Contributions regarding computational methods may include, but are not restricted to, artificial intelligence, databases, decision support systems, genetic algorithms, modelling languages, neural networks, numerical algorithms for optimization, control and equilibria, parallel computing and qualitative reasoning.