Unemploymentfiscalmultipliers

We estimatetheeffectsoffiscalpolicyonthelabormarketinUSdata.Anincreasein governmentspendingof1percentofGDPgeneratesoutputandunemployment multipliers,respectively,ofabout1.2percent(atoneyear)and0.6percentagepoints(at the peak).EachpercentagepointincreaseinGDPproducesanincreaseinemploymentof about 1.3millionjobs.Totalhours,employmentandthejobfindingprobabilityallrise, whereastheseparationratefalls.Astandardneoclassicalmodelaugmentedwithsearch and matchingfrictionsinthelabormarketlargelyfailsinreproducingthesizeofthe outputmultiplierwhereasitcanproducearealisticunemploymentmultiplierbutonly under aspecialparameterization.Extendingthemodeltostrengthenthecomplemen- tarityinpreferences,toincludeunemploymentbenefits,realwagerigidityand/ordebt financingwithdistortionarytaxationonlyworsensthepicture.NewKeynesianfeatures only marginallymagnifythesizeofthemultipliers.Whencomplementarityiscoupled with pricestickiness,however,themagnificationeffectcanbelarge