From He-Cession to She-Stimulus? The Labor Market Impact of Fiscal Policy Across Gender

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Despite substantial progress in the labour market fortunes of women over recent decades, gaps in wages and employment rates between male and female workers remain significant. In addition, gender differences in industry composition can create cyclical fluctuations in labour market gaps, as men tend to work in sectors more exposed to business cycles. Notably, young, less-educated and blue-collar men are particularly strongly affected by recessions. The literature has shown increasing interest in the role of fiscal policy in reducing inequalities and paid less attention to the gender dimension.

Our study provides insights on the importance of the composition of government expenditure for understanding the impact of fiscal shocks on labour market outcomes across gender. We also examine the impact on demographic subgroups to assess whether fiscal expansions that close gender gaps can simultaneously offset the inequitable effects of business cycles on some categories of male workers.

Using micro-level data for the United States, we find that government spending on the wage bill narrows gender gaps in wages and employment rates. In contrast, government purchases from the private sector and investment expenditure tend to stimulate men’s wages more than women’s. These results are likely driven by spending components that target specific occupations and sectors which differ in their gender composition. In addition, promoting gender equality through fiscal expansions is not fully compatible with offsetting other types of inequalities. The government wage bill, which best closes gender gaps, has adverse effects on the labour markets outcomes of male workers most vulnerable to downturns. Similarly, investment spending, which raises employment of men hardest hit during recessions, cannot reduce gender inequalities but rather contributes to widening them.