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The impact of policy uncertainty on U. S. employment: industry evidence

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  • J. Christina Wang

Abstract

The anemic pace of the recovery of the U. S. economy from the Great Recession has frequently been blamed on heightened uncertainty, much of which concerns the nation?s fiscal policy. Intuition suggests that increased policy uncertainty likely has different impacts on different industries, to the extent that industries differ in their exposure to government policies. This study utilizes industry data to explore whether policy uncertainty indeed affects the dynamics of employment, and particularly its impact on industry employment, during this recovery. This analysis focuses on heterogeneity across industries in terms of the fraction of their product demand that can ultimately be attributed to federal government expenditures. The estimation results reveal that policy uncertainty indeed retards employment growth more in industries that rely more heavily on federal government demand: the growth rate of employment in these industries appears to have been four-tenths of a percentage point lower during the quarters in recent years when policy uncertainty spiked.

Suggested Citation

  • J. Christina Wang, 2013. "The impact of policy uncertainty on U. S. employment: industry evidence," Public Policy Brief, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbpb:00001
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    References listed on IDEAS

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    1. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    2. Susanto Basu & Brent Bundick, 2017. "Uncertainty Shocks in a Model of Effective Demand," Econometrica, Econometric Society, vol. 85, pages 937-958, May.
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    Cited by:

    1. J. Christina Wang, 2013. "The cost of fiscal policy uncertainty: industry evidence of its impact on the labor market," Working Papers 13-22, Federal Reserve Bank of Boston.

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    More about this item

    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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