Book Description

This dissertation examines the impacts on the labor market of monetary policy and macroeconomic uncertainty. The first chapter examines how monetary policy shocks in the U.S. affect the flows of workers among three labor market categories--employment, unemployment, and non-participation--and assesses each flow's relative importance to changes in labor market "stock'' variables like the unemployment rate. I find that job loss accounts for the largest portion of monetary policy's effect on labor markets. I develop a New Keynesian model that incorporates these channels and show how a central bank can achieve welfare gains from targeting job loss, rather than output, in an otherwise standard Taylor rule. The second chapter examines the role of monetary policy in "job polarization.'' I argue that contractionary monetary policy has accelerated the decline of employment in routine occupations, which largely affected workers with a high-school degree but no college. In part by disproportionately affecting industries with high shares of routine occupations, contractionary monetary policy shocks lead to large and persistent shifts away from routine employment. Expansionary shocks, on the other hand, have little effect on these industries. Indeed, monetary policy's effect on overall employment is concentrated in routine jobs. These results highlight monetary policy's role in generating fluctuations not only in the level of employment, but also the composition of employment across occupations and industries. The third chapter introduces new direct measures of uncertainty derived from the Michigan Survey of Consumers. The series underlying these new measures are more strongly correlated with economic activity than many other series that are the basis for uncertainty proxies. The survey also facilitates comparison with response dispersion or disagreement, a commonly used proxy for uncertainty in the literature. Dispersion measures have low or negative correlation with direct measures of uncertainty and often have causal effects of opposite sign, suggesting that they are poor proxies for uncertainty. For the measures based on series most closely correlated with economic activity, positive uncertainty shocks are mildly expansionary. This result is robust across identification and estimation strategies and is consistent with "growth options'' theories of the effects of uncertainty.