Employment, party economic performance, and the formation of partisan preferences

In order to explore the formation of partisan preferences, this paper devel ops a political-economic model of the US providing micro-foundations for bo th the genesis and consequences of unemployment. It predicts the standard f indings (1) that Democratic administrations are associated with higher econ omic growth than are Republican administrations; and (2) that the electorat e's partisan preference is influenced by the relative likelihood of unemplo yment. These two patterns and the link between them are explained in terms of the decisions of rational agents facing uncertain elections and competit ive labor markets. Specifically, differences in the parties' fiscal policie s affect individuals' employment decisions. Agents use labor contracts to e xploit the resulting economic uncertainty. The partisan preferences of the electorate are then influenced by employment status. This explanation avoid s certain limitations in the work of Hibbs and Alesina.