Hours worked are determined by per-period Nash bargaining, and after taking into account the wage decision (equation 68), hours worked expression is:
αHxs,t(hs,t)α_ H-1 = (χ)/(uprime(cs,t))((1+τtwf))/((1-τtwh))(hs,t)φ.
(70)
Labour from Ricardian and non-Ricardian households is aggregated by a labour packer using a CES technology, as follows:
nt1-1/(η) = [(1-ω)1/(η)(ndei,thi,tα_ H)1-1/(η)+ω1/(η)(ndej,thj,tα_ H)1-1/(η)],
(71)
where nt are aggregate labour services and ndes,ths,tα_ H are total labour services provided by labour firms in household segment s. Parameter ω measures the share of non-Ricardian households in the economy.
Here we briefly discuss the implications of more volatile labour market when the delays are related to construction rather than planning. As discussed in the main text, this case is less interesting from the perspective of the news shocks literature than a planning delay, because there is an immediate stimulus of the economy from government spending on public investment (rather than no immediate stimulus in the case of the planning delay). The news of the future productivity of higher level of public capital is, however, identical in the case of planning and construction delays.
The results of the time to build delay are shown in Figure 8 for the main macroeconomic variables and in Figure 9 for the labour market variables. The main findings are similar than for planning delays: the increases in consumption, investment, and labour during the construction phase are somewhat larger if the labour market is more volatile. On the other hand, the increase in inflation is more dampened, which happens for the same reason as in the case of planning delays, i.e., an early increase in hiring causes and increase in labour, which dampens the increase in firms' marginal costs and therefore inflation. Long-run results are identical in the case of planning or construction delays, as the final steady state does not depend on the delay.