Employment, Party Economic Performance, and the Formation of Partisan Preferences

In order to explore the formation of partisan preferences, this paper develops a political-economic model of the US providing micro-foundations for both the genesis and consequences of unemployment. It predicts the standard findings (1) that Democratic administrations are associated with higher economic growth than are Republican administrations; and (2) that the electorate's partisan preference is influenced by the relative likelihood of unemployment. These two patterns and the link between them are explained in terms of the decisions of rational agents facing uncertain elections and competitive labor markets. Specifically, differences in the parties' fiscal policies affect individuals' employment decisions. Agents use labor contracts to exploit the resulting economic uncertainty. The partisan preferences of the electorate are then influenced by employment status. This explanation avoids certain limitations in the work of Hibbs and Alesina.