59 research outputs found
Fiscal Multipliers over the Business Cycle
Get PDFThis paper illustrates why fiscal policy becomes more effective as unemployment rises in recessions. The theory is based on the equilibrium unemployment model of Michaillat (forthcoming), in which jobs are rationed in recessions. Fiscal policy takes the form of government spending on public-sector jobs. Recessions are periods of acute job shortage without much competition for workers among recruiting firms; hiring in the public sector does not crowd out hiring in the private sector much; therefore fiscal policy reduces unemployment effectively. Formally the fiscal multiplier—the reduction in unemployment rate achieved by spending one dollar on public-sector jobs—is countercyclical. An implication is that available estimates of the fiscal multiplier, which measure the average effect of fiscal policy over the business cycle, do not apply in recessions because the multiplier is much higher in recessions than on average.Fiscal multiplier, unemployment, business cycle, job rationing, matching frictions
Jobs in a recession: now would be a good time for the government to conduct infrastructure projects but a bad time to cut unemployment benefits
No full textPascal Michaillat discusses research on employment during recessions, arguing against unemployment benefit cuts as a tool to incentivise job-seeking and suggesting that public employment is especially effective at stimulating the economy – without crowding out the private sector – at any time when the labour market is depressed
Replication Data for: Critical Values Robust to P-hacking
No full textReview of Economics and Statistics: Forthcomin
Fiscal multipliers over the business cycle
No full textThis paper illustrates why fiscal policy becomes more effective as unemployment rises in recessions. The theory is based on the equilibrium unemployment model of Michaillat (forthcoming), in which jobs are rationed in recessions. Fiscal policy takes the form of government spending on public-sector jobs. Recessions are periods of acute job shortage without much competition for workers among recruiting firms; hiring in the public sector does not crowd out hiring in the private sector much; therefore fiscal policy reduces unemployment effectively. Formally the fiscal multiplier—the reduction in unemployment rate achieved by spending one dollar on public-sector jobs—is countercyclical. An implication is that available estimates of the fiscal multiplier, which measure the average effect of fiscal policy over the business cycle, do not apply in recessions because the multiplier is much higher in recessions than on average
Do Matching Frictions Explain Unemployment? Not in Bad Times
Get PDFThe long queues of unemployed workers at job bureaus and factory gates observed during the Great Depression suggest that jobs are lacking in recessions, irrespec-tive of frictions in matching unemployed workers to recruiting firms. Existing search-and-matching models of unemployment, either with bargained wages as in Pissarides (2000) or with rigid wages as in Hall (2005a), converge asymptotically to full employment when matching frictions disappear, which makes these models inadequate to study recessionary unemployment. In contrast, this paper proposes a search-and-matching model in which jobs are rationed in recessions: the labor mar-ket does not clear at the limit where matching frictions are absent. By constructing a model in which job rationing arises in equilibrium in a frictional labor market, one can begin to understand its macroeconomic implications more rigorously. The distinctive feature of the model is that in recessions, jobs are rationed in the sense that some unemployment remains in the absence of matching frictions. Rationing unemployment measures the shortage of jobs in the absence of match-ing frictions, and frictional unemployment measures additional unemploymen
Fiscal Multipliers Over the Business Cycle
No full textThis paper develops a theory characterizing the effects of fiscal policy on unemployment over the business cycle. The theory is based on a model of equilibrium unemployment in which jobs are rationed in recessions. Fiscal policy in the form of government spending on public-sector jobs reduces unemployment, especially during recessions: the fiscal multiplier---the reduction in unemployment rate achieved by spending one dollar on public-sector jobs---is positive and countercyclical. Although the labor market always sees vast flows of workers and a great deal of matching, recessions are periods of acute job shortage without much competition for workers among recruiting firms. Hence hiring in the public sector reduces unemployment effectively because it does not crowd out hiring in the private sector much. An implication is that empirical studies should control for the state of the economy when fiscal policies are implemented to estimate accurately the amplitude of fiscal multipliers in recessions.business cycle; fiscal multiplier; job rationing; matching frictions; unemployment
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Modeling Migration-Induced Unemployment
Get PDFImmigration is often blamed for increasing unemployment among local workers.
This sentiment is reflected in the rise of anti-immigration parties and
policies in Western democracies. And in fact, numerous studies estimate that in
the short run, the arrival of new workers in a labor market raises the
unemployment rate of local workers. Yet, standard migration models, such as the
Walrasian model and the Diamond-Mortensen-Pissarides model, inherently assume
that immigrants are absorbed into the labor market without affecting local
unemployment. This paper presents a more general model of migration that allows
for the possibility that not only the wages but also the unemployment rate of
local workers may be affected by the arrival of newcomers. This extension is
essential to capture the full range of potential impacts of labor migration on
labor markets. The model blends a matching framework with job rationing. In it,
the arrival of new workers raises the unemployment rate among local workers,
particularly in a depressed labor market where job opportunities are limited.
On the positive side, in-migration helps firms fill vacancies more easily,
boosting their profits. The overall impact of in-migration on local welfare
varies with labor market conditions: in-migration reduces welfare when the
labor market is inefficiently slack, but it enhances welfare when the labor
market is inefficiently tight
Fiscal multipliers over the business cycle
No full textThis paper develops a theory characterizing the effects of fiscal policy on unemployment over the business cycle. The theory is based on a model of equilibrium unemployment in which jobs are rationed in recessions. Fiscal policy in the form of government spending on public-sector jobs reduces unemployment, especially during recessions: the fiscal multiplier---the reduction in unemployment rate achieved by spending one dollar on public-sector jobs---is positive and countercyclical. Although the labor market always sees vast flows of workers and a great deal of matching, recessions are periods of acute job shortage without much competition for workers among recruiting firms. Hence hiring in the public sector reduces unemployment effectively because it does not crowd out hiring in the private sector much. An implication is that empirical studies should control for the state of the economy when fiscal policies are implemented to estimate accurately the amplitude of fiscal multipliers in recessions
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