How harmful are cuts in public employment and wage in times of high unemployment?

Since 2010, and in line with austerity measures, public employment public-sector compensations to employees have been significantly reduced most Euro Area member states particularly Spain Greece. At the same time, unemployment these two economies was greatly increasing. In a dynamic stochastic general equilibrium (DSGE) model, we demonstrate that cuts wages are more damaging terms of output losses periods high unemployment. The model is able produce significant state dependence fiscal multipliers. Main results can be summarized as follows: (1) Public-sector shocks larger multipliers than shocks; (2) higher steady-state unemployment, response non-Ricardian consumption worse while Ricardian households better off, thanks lower inflation following marginal utility at high-unemployment steady state; (3) share households, job separation rate, matching efficiency amplify multipliers; (4) passive monetary policy increases case vacancy but dampens associated wages; (5) when demand supply hit economy, greater extent negative shock on aggregate demand.