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The short-run employment effects of public infrastructure investment

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  • Matusche, Alexander

Abstract

I study the stimulus effects of a permanent expansion of public investment that improves long-run productivity. Through an anticipation effect on labor demand, the policy change raises employment already in the short-run. In a model with search and matching labor market, I characterize the employment multiplier of public investment analytically and show that it is larger in a recession than a boom. Calibrated to the US, the model yields an increase in employment of 0.26 percentage points one year after a permanent expansion of public investment by 1% of GDP. The anticipation effect accounts for 65% of the employment gain.

Suggested Citation

  • Matusche, Alexander, 2025. "The short-run employment effects of public infrastructure investment," European Economic Review, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:eecrev:v:177:y:2025:i:c:s0014292125000960
    DOI: 10.1016/j.euroecorev.2025.105046
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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