The Municipal Wage and Employment Effects of Public Infrastructure

We empirically examine the relationship between public capital and municipal employment levels and changes using a sample of 48 large US cities during the 1970-80 period. We find greater stocks of public capital are associated with a higher demand for and supply of municipal workers. Holding all other factors constant, the effect of a 10 per cent greater level of per capita public capital stock is a 0.6 and 12.9 per cent higher demand for and supply of municipal workers in the short run. Reduced form estimates indicate a net positive effect on municipal employment but no net effect on municipal wages. These findings are supported by a fixed-effect model estimation.