A spatial analysis of employment multipliers in the US

Abstract

The actual effectiveness of employment promotion policies depends on the ability of the intervention at creating new jobs in the targeted sector, but also, to a large extent, on the impact they have on other parts of the local economy. Estimating the latter effect is therefore quite important for regional economic development policies. Along the lines of Moretti (Am Econ Rev Pap Proc 100:373–377, 2010), we present an empirical analysis of local employment multipliers using data on 123 US Metropolitan Statistical Areas over the period 1980–2010. From the methodological point of view, in this work not only endogeneity (via instrumental variables estimates), but also spatial spillovers are taken into account. According to the results, the magnitude of the multiplier could be rather limited. On the other hand, there is clear indication that the impact of these interventions is not fully contained within the local economy and they have a positive effect on closely surrounding ones.