Public Infrastructure and Wages: Public Capital's Role as a Productive Input and Household Amenity

Abstract

Production function studies typically conclude that public capital plays little role in enhancing productivity. However, others have found that infrastructure and employment growth are positively related. These apparently conflicting results can be reconciled if public capital serves as a household amenity that increases labor supply without dramatically increasing productivity. This study examines the impact of public capital on wages in order to assess whether productivity or amenity effects dominate. For the economy as a whole, the results suggest that highway's strongest role is as a household amenity, however, for the manufacturing sector, the productivity effect of highways appears to dominate.