We study the relation between public capital, employment and growth under different assumptions concerning wage formation. We show that public capital increases economic growth, and that, if there is wage inertia, employment positively depends on both economic growth and public capital.Raurich is grateful to Universitat de Girona for financial support through grant UdG 9101100. Sorolla is grateful to Spanish Ministry of Education for financial support through DGICYT grant SEC2000-0684.