The effect of monetary policy on employment: sectoral heterogeneity and automation

Monetary policy affects firms’ hiring and investment decisions via changes in interest rates. This paper examines its impact on employment through capital-labour substitution by automation, focusing on sectoral differences. Key findings reveal: (1) High-automatable occupations in the service sector see significant job losses after contractionary shocks, while the manufacturing sector shows no such response; (2) Within the service sector, temporary and low-skilled workers in high-automatable occupations are most affected, though this weakens when low-automatable workers are included. These results highlight automation risk as a key factor shaping employment dynamics under interest rate hikes, particularly in the service sector.