Working Paper: NBER ID: w26365
Authors: Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy
Abstract: We link detailed data on defense spending, wages, hours, employment, establishments, and GDP across U.S. cities to study the effects of fiscal stimulus. Our small-open-economy empirical setting permits us to estimate key macroeconomic outcomes and elasticities, including the responses of the labor share and the labor wedge to demand shocks and the elasticity of output with respect to labor inputs. We also decompose changes in work hours into different margins (hours per worker, the employment rate, and the labor force) and examine effects on local rental prices, wages, and firm entry. We compare our findings with the predictions of macroeconomic models and propose modifications to existing theory that can accommodate our findings.
Keywords: Fiscal Stimulus; Macroeconomic Models; Labor Market Dynamics
JEL Codes: E32; E62; H5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Defense spending shock (H56) | Labor share (J39) |
| Defense spending shock (H56) | Household labor wedge (D13) |
| Defense spending shock (H56) | Unemployment (J64) |
| Defense spending shock (H56) | Nominal wages (J31) |
| Defense spending shock (H56) | Local rental prices (R31) |
| Defense spending shock (H56) | Employment rate (J63) |
| Defense spending shock (H56) | Hours worked (J22) |
| Defense spending shock (H56) | Firm entry (L26) |
| Labor inputs (J29) | Productivity (O49) |