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Employment and public capital in Spain

  • Xavier Raurich
  • Hector Sala
  • Valeri Sorolla

This paper analyses the effects on employment of increasing the stock of public capital. To this end, we derive a wage equation so that wages are endogenized. This allows us to show that, by means of a higher elasticity of labour demand with respect to wages, a rise in public capital increases employment. The estimation of a structural model for the Spanish private sector tests and confirms empirically this relationship. The results show that an increase in public capital has a significant and positive direct influence on employment, and indirect effects derived from lower wages and higher economic growth. Finally, we undertake a simulation exercise to assess the long run effects on employment and economic growth of increasing public capital

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Paper provided by FEDEA in its series Working Papers with number 2001-21.

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Handle: RePEc:fda:fdaddt:2001-21
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  1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  2. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  3. Eriksson, Clas, 1997. "Is There a Trade-Off between Employment and Growth?," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 77-88, January.
  4. Pereira, Alfredo M & Sagales, Oriol Roca, 1999. "Public Capital Formation and Regional Development in Spain," Review of Development Economics, Wiley Blackwell, vol. 3(3), pages 281-94, October.
  5. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-91, January.
  6. Lynde, Catherine & Richmond, J, 1993. "Public Capital and Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
  7. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  8. Pereira, Alfred M. & Roca-Sagales, Oriol, 2001. "Infrastructures and private sector performance in Spain," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 371-384, May.
  9. Aghion, Philippe & Howitt, Peter, 1991. "Growth and Unemployment," CEPR Discussion Papers 577, C.E.P.R. Discussion Papers.
  10. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
  11. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  12. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
  13. Karanassou, Marika & Snower, Dennis J., 2000. "Characteristics of Unemployment Dynamics: The Chain Reaction Approach," IZA Discussion Papers 127, Institute for the Study of Labor (IZA).
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