Fiscal Policy and Occupational Employment Dynamics

We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks in the United States. Employment rises most strongly in service, sales, and office (“pink‐collar”) occupations. By contrast, employment in blue‐collar occupations is hardly affected by fiscal policy. We provide evidence that occupation‐specific changes in labor demand are key for understanding these findings. We develop a business‐cycle model that explains the heterogeneous occupational employment dynamics as a consequence of composition effects due to heterogeneous employment changes across industries and occupation‐specific within‐industry employment shifts due to differences in the short‐run substitutability between labor and capital services across occupations.