Working Paper: NBER ID: w4889
Authors: Mark Hooker; Michael Knetter
Abstract: We use data on a panel of states over a 30 year sample to estimate the response of unemployment to military procurement spending. The state panel provides greater variation in both variables and permits us to examine whether responses to procurement spending shocks vary across states. Our main finding is that changes in procurement spending significantly affect unemployment in states heavily dependent on the military sector and subject to large such changes, and that accounting for this variation in responses across states adds approximately 40% to the estimated aggregate unemployment impact of the current drawdown.
Keywords: Military Spending; Unemployment; Procurement Spending; Panel Data
JEL Codes: H56; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Military procurement spending (H56) | Unemployment rates (J64) |
| Increases in military procurement spending (H56) | Decreases in unemployment in states reliant on military contracts (H56) |
| Military procurement spending (H56) | Aggregate unemployment impact (J64) |
| Defense drawdowns (H56) | Increases in unemployment (J64) |