Entry, unemployment, and the transmission of government spending shocks

Givens, Gregory and Tavoy, Reid (2024): Entry, unemployment, and the transmission of government spending shocks.

Abstract

Postwar data reveals significant co-movement between net firm entry and private consumption conditional on a government spending shock. We construct and estimate an equilibrium model that matches this observation both in a qualitative sense and with an eye towards replicating the quantitative effects over time. Our model combines endogenous entry subject to sunk costs with unemployment arising from unobservable effort. Key to its success is an insurance design that partially protects workers against job risk. This feature allows aggregate consumption to increase through compositional changes in the labor force while amplifying the procyclical response of firm entry.

• Item Type: MPRA Paper
• Language: English
• Keywords: Government Spending; Consumption; Entry; Unemployment Insurance
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Labor Contracts

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