This paper analyze effects of public debt on economic growth in a basic endogenous growth model with persistent unemployment due to wages rigidities. We show that there exists either a unique balanced growth path or there are two balanced growth paths depending on structural parameters and on the flexibility of the labour market. Further, public debt does not affect long-run growth and employment but only stability of the economy. Stability is the more likely the more weight governments put on stabilizing the public debt to GDP ratio.