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Original title:
The effects of government spending in segmented labor and financial markets
Authors: Stojanović, Dušan
Document type: Research reports
Year: 2023
Language: eng
Series: CERGE-EI Working Paper Series, volume: 748
Abstract: This paper develops a model with high-skilled and low-skilled workers to show the expansionary effects of government spending despite large training costs for new hires. The main idea is that a fiscal stimulus induces changes in the composition of the labor force conditional on the extent of aggregate demand pressure. A period of high aggregate demand pressure is followed by a high value of forgone output as training activity causes production disruption. In this period firms decide to hire more low-skilled workers, who constitute a cheaper part of the labor force. When aggregate demand pressure is diminished, firms switch to hiring more high-skilled workers. However, the current literature considers only high-skilled workers, who tend to increase saving in government bonds to protect against poor employment prospects. In this case, the combination of weak employment prospects and the crowding-out effects of higher lump-sum taxes and government debt on private consumption and capital investment gives rise to recessionary effects. In contrast, this paper provides a model with a more realistic labor and financial market structure and suggests that countercyclical government spending in the form of government consumption and especially government investment can be used to deal with recessions.\n
Keywords: government spending; search and match frictions; training cost
Project no.: LX22NPO5101
Funding provider: GA MŠk
Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp748.pdf
Original record: https://hdl.handle.net/11104/0346889
Permalink: http://www.nusl.cz/ntk/nusl-536855
The record appears in these collections:
Research > Institutes ASCR > Economics Institute
Reports > Research reports
Authors: Stojanović, Dušan
Document type: Research reports
Year: 2023
Language: eng
Series: CERGE-EI Working Paper Series, volume: 748
Abstract: This paper develops a model with high-skilled and low-skilled workers to show the expansionary effects of government spending despite large training costs for new hires. The main idea is that a fiscal stimulus induces changes in the composition of the labor force conditional on the extent of aggregate demand pressure. A period of high aggregate demand pressure is followed by a high value of forgone output as training activity causes production disruption. In this period firms decide to hire more low-skilled workers, who constitute a cheaper part of the labor force. When aggregate demand pressure is diminished, firms switch to hiring more high-skilled workers. However, the current literature considers only high-skilled workers, who tend to increase saving in government bonds to protect against poor employment prospects. In this case, the combination of weak employment prospects and the crowding-out effects of higher lump-sum taxes and government debt on private consumption and capital investment gives rise to recessionary effects. In contrast, this paper provides a model with a more realistic labor and financial market structure and suggests that countercyclical government spending in the form of government consumption and especially government investment can be used to deal with recessions.\n
Keywords: government spending; search and match frictions; training cost
Project no.: LX22NPO5101
Funding provider: GA MŠk
Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp748.pdf
Original record: https://hdl.handle.net/11104/0346889
Permalink: http://www.nusl.cz/ntk/nusl-536855
The record appears in these collections:
Research > Institutes ASCR > Economics Institute
Reports > Research reports
Record created 2023-11-12, last modified 2024-04-15