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Entry, unemployment, and the transmission of government spending shocks

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  • Givens, Gregory
  • Tavoy, Reid

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.

Suggested Citation

  • Givens, Gregory & Tavoy, Reid, 2024. "Entry, unemployment, and the transmission of government spending shocks," MPRA Paper 121894, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121894
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    References listed on IDEAS

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    More about this item

    Keywords

    Government Spending; Consumption; Entry; Unemployment Insurance;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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