European Union: Productivity, unemployment, and educational expenditure

This paper analyzes the effect of public investment and investment in education on production and productivity using a production technology function, a productivity function, a labor demand function and pairwise Granger causality tests. The results show that public investment (infrastructure and education) affect positively the private sector output and productivity growth. A direct effect on private sector output growth arises from the availability of public capital to support private sector production and an indirect effect evolves from the complementarity between private and public capital in private-sector productive activity. This implies that we need a balance in our economies among growth, productivity, and employment.