The long term effects of federal government debt accumulation on employment in the United States of America

Abstract

Despite the financial benefits of government debt, its effectiveness in the economy and the transmission mechanisms of fiscal policy are still on debate. Given this situation, the general goal of this research article was to empirically assess the effects of debt on labor demand. By assuming that debt changes the foreign exchange value of the currency, and that these deviations in the underlying value of money generate price fluctuations of both output and labor, it was hypothesized that when there is an increase in the stock of accumulated debt, more labor is employed in the economy as the currency depreciates. For the period 1973-2010, using time series econometric methods, it was determined that– in The United States of America–the employed labor of the economy is, in the long run, significantly altered by government debt accumulation.