The short-run employment effects of public infrastructure investment

Alexander Matusche

European Economic Review, 2025, vol. 177, issue C

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.

Keywords: Public investment; Infrastructure; Labor markets; Fiscal multiplier (search for similar items in EconPapers)
JEL-codes: E22 E24 E62 H54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:177:y:2025:i:c:s0014292125000960

DOI: 10.1016/j.euroecorev.2025.105046

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