Abstract:
This paper examines the effects of infrastructure expenditures and State incentives over regional labour markets for the U.S. economy. To this end, I propose a simple model in which workers have some kind of mobility and firms make use of two types of incentives: monetary (R&D tax credits) and non-monetary (diffusion of past public policies). Then, I identify some stylized facts from the U.S business slowdown (e.g., higher knowledge gap and lower competition between public firms) in high-tech sectors during the 1990-2015 period. I focus on these group of firms because regional economies are expected to be benefited more from the increasing value share generated as well as different forms of agglomeration economies and thick market externalities. I find that R&D tax credits and the diffusion of past policies coupled with private non-residential expenditures have a positive business “enabler” entrepreneurship effect on employment rates while highway expenditures display a negative “disabler” effect. Interestingly, generous State subsidies and R&D user cost gains are positively associated to higher job creation rates in bottom rather than top value-added sectors. When spatial effects are accounted for, I find positive and significant spillover effects of R&D tax-credits in both groups provided that efficiency gains are pass-through to more patents and scientific citations. Likewise, in the case of wages the median worker in lower value-added sectors benefits more from these public policies as his/her salary is higher compared to workers in top value-added sectors. Evidently, larger amounts of knowledge in sectors with increasing value shares do not necessarily imply more jobs and/or better salaries. Therefore, the findings of this paper are an important departure from the “beggar the neighbour effect” and the effectiveness of traditional public policies over labour markets.
Status: (new revision in progress)
