Using a quantitative search-and-matching framework, we examine how fiscal policy transmits through labor markets under fundamentally different crisis environments, comparing outcomes during the Great Recession with those of the COVID-19 pandemic. We introduce public-health frictions as reduced-form wedges that constrain labor utilization and consumption, thereby generating underutilization and forced savings without relying on explicit epidemiological SIR models. This framework preserves a common labor-market structure while allowing shocks to operate either through aggregate demand, as in the Great Recession, or through utilization constraints, as observed during the COVID-19 episode. Calibrated to the U.S. economy, the results show that large-scale fiscal support associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act (ARPA) stabilized household income and prevented persistent unemployment but also raised the shadow value of nonemployment and increased reservation wages. In a supply-constrained environment, such aggressive fiscal support generates more persistent inflation and lowers the equilibrium job-filling probability, producing fewer matches per vacancy and elevated vacancy rates as firms compete for scarce workers. These results highlight that fiscal interventions that are effective in demand-driven downturns may exacerbate labor market tightness and inflationary pressures when supply is constrained. By holding the labor market structure fixed, the paper isolates how the underlying shock regime fundamentally reshapes fiscal transmission. These findings should be read as identifying a policy trade-off between consumption stabilization on the one hand, and inflationary and labor-market costs on the other, rather than as a general argument against fiscal support in supply-constrained crises.
