Resumen de Employment and Public Capital in Spain

Xavier Raurich Puigdevall, Valeri Sorolla, Héctor Sala

• This paper analyses the e¿ects 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 con¿rms empirically this relationship. The results show that an increase in public capital has a signi¿cant and positive direct in- ¿uence on employment, and indirect e¿ects derived from lower wages and higher economic growth. Finally, we undertake a simulation exercise to assess the long run e¿ects on employment and economic growth of increasing public capital.