The Effect of Public Expenditures on Unemployment: Does Technology Matter?

Recent developments in technology are inducing irreversible transformations in the labor market. In particular, developments in automation and artificial intelligence have brought the fear of technological unemployment back to the agenda. It is expected that a significant number of the workforce will lose their jobs in the future due to low-skilled employees are more vulnerable to technology. In addition, it is discussed in the literature that technology will trigger the problem of income (or wealth) distribution in the labor market. In this context, fiscal policies have begun to be presented and discussed as a solution in the literature to reduce the negative effects of technology. This study investigates how public expenditures can affect unemployment when technological transformations accelerate by using the dynamic threshold panel model for 38 countries between 2000 and 2021. According to the results, the employment-enhancing effect of public expenditures weakens when technological transformations accelerate.