Sectoral employment effects of state fiscal relief: evidence from the Great Recession

Abstract We document that the employment effects of financial aid to US states during the Great Recession were strongly unevenly distributed across sectors, the construction sector being the main beneficiary. State fiscal relief not only preserved a substantial number of jobs but it also fostered employment most strongly in the sectors hit hardest by the recession. Exploiting across-state differences, we conclude that the sectoral employment effects of state fiscal relief reflect the typical spending patterns of state and local governments, who usually spend large shares of their discretionary expenditures on construction.