Labour Market Composition: Is the Public Sector Attenuating Recessions?

Résumé : Income risk, a key determinant of household behavior over the business cycle, is unevenly distributed across industries. Public sector jobs, often considered « recession-proof, » carry lower unemployment risk, whereas private sector workers face significant uncertainty regarding future earnings. Income security reduces precautionary savings needs, freeing up resources for consumption and easing liquidity constraints. Additionally, government employment stabilizes aggregate turnover following downturns, reinforcing economic resilience.

This study embeds these mechanisms within a Heterogeneous Agent New Keynesian (HANK) framework featuring two employment states and two asset choices, calibrating idiosyncratic income risk across industries. Both empirical evidence and preliminary model results indicate that, for government employees, higher income security leads to lower liquid asset holdings and an increase in the marginal propensity to consume. Moreover, when economic shocks occur, these individuals are expected to sustain consumption levels, reinforcing economic stability through illiquid investment channels. This mechanism, observed in my empirical findings, in turn, supports firm production. By separating government employment, I aim to identify the weight government employment has on business cycles recovery.