Infrastructure Spending Builds American Jobs
Infrastructure Spending Builds American Jobs
Public Investments Help Private Businesses Create Jobs
Kristina Costa and Adam Hersh detail the bang for the buck we get from government spending on critical infrastructure projects.
The construction sector was particularly hard hit by the Great Recession of 2007-2009 and really never quite recovered, with devastating consequences for construction workers. Unemployment in construction remains dismal. In August 2011 the unemployment rate in the construction industry stood at 13.2 percent—substantially higher than the economy-wide unemployment rate of 9.1 percent. The loss of jobs and investment in construction has been dragging down the overall U.S. economy. At the same time, the United States’ transportation and other public infrastructure is underfunded, aging, and growing increasingly inadequate to serve the needs of families and business competitiveness.
Fortunately, there is something very simple the federal government can do about these problems: Put more resources into infrastructure investment. We know from very recent experience that infrastructure investments deliver the goods for job creation and business growth. Two years ago, the unemployment rate for construction workers was 17 percent—before federal government stimulus funds boosted construction and the overall economy. In 2009 Congress and the Obama administration allocated an additional $29.9 billion in transportation spending for roads, bridges, and transit systems alongside another $21.7 billion for other infrastructure investments, ranging from funds for improving drinking and wastewater systems to large-scale civil engineering projects overseen by the Army Corps of Engineers.
Together, this money accounted for 6 percent of spending through the Recovery and Reinvestment Act of 2009, directly creating 1.1 million jobs by March 2011 in the construction sector. Those 1.1 million jobs represent 17 percent higher construction employment than would have been the case without government action, according to an analysis by Daniel J. Wilson, an economist with the Federal Reserve.
Investments in infrastructure, of course, contribute more to the U.S. economy than simply providing much-needed construction sector jobs. Improved infrastructure reduces costs for businesses, making U.S. companies more competitive. Infrastructure and transportation investment indirectly creates jobs in other sectors of the economy, including manufacturing, because construction projects require sophisticated materials and machines. And the good middle-class incomes earned by those newly employed in infrastructure investment projects fuel spending elsewhere in the economy, thereby maintaining and increasing private-sector employment.
When construction workers get their paychecks, for example, they may use the money to pay rent or the mortgage, buy groceries, take the kids to the dentist, or for other household spending—the same things all people do when they get paid. These activities generate sales for businesses and help create and maintain jobs for workers throughout the rest of the economy.
But for construction workers, the benefits of government spending on transportation and infrastructure investments are direct. The spending helped bring down the high unemployment rates experienced in the construction sector of the economy. The accompanying chart compares the most recent August 2011 construction unemployment rate with the unemployment rates for the same month in preceding years. Prior to the Great Recession, average August unemployment in the construction industry was around 6.5 percent. As the real estate market collapsed and the recession took hold, construction unemployment shot up precipitously, reaching 8.7 percent in 2008 and 17 percent in 2009. Infrastructure projects often have long planning stages, but as Recovery Act infrastructure investment kicked into gear, construction unemployment notched steadily down, falling to 16.3 percent in 2010 and then to 13.2 percent in August 2011.
Academic, private-sector, and nonpartisan government studies alike confirm the positive effects of infrastructure and transportation investments on private-sector employment. Data collected and published by the Transportation and Infrastructure Committee in the House of Representatives show that every $1 billion in additional funds committed to highway projects between 2009 and 2010 produced 2.4 million job-hours, according to an analysis by Smart Growth America. The return on investment on transit projects was even higher, with 4.2 million job-hours produced by every $1 billion in investment. With $21.5 billion in highway funding alone, the Recovery Act put Americans to work on our nation’s roadways for 51 million hours—time they may have otherwise spent idle and unpaid.
The fact that transportation spending translates to real jobs in construction and other industries isn’t surprising. The Federal Highway Administration periodically estimates the impact of highway spending on direct employment, defined as:
- Jobs created directly by the firms working on a given project
- Jobs supported indirectly by the project, including those in firms supplying materials and equipment for projects
- Jobs induced by direct and indirect hires when they make consumer purchases with their paychecks
In 2007 every $1 billion in federal highway expenditures supported about 30,000 jobs—10,300 in construction, 4,675 in supporting industries, and 15,094 in induced employment.
To be sure, not all infrastructure projects create equivalent numbers of jobs. According to a 2009 analysis by the Metropolitan Research Center at the University of Utah, transit projects and road and bridge repairs generate larger employment impacts than new road and bridge construction. According to their model, repair work on roads and bridges generates 16 percent more jobs than new construction, and transit projects generate 31 percent more jobs than new construction.
Today, previous government spending on infrastructure is winding down—and so is the pace of private-sector job creation. To make matters worse, the current federal highway bill, which allows Congress to collect gasoline excise duties and authorizes funding for surface transportation projects across the country, will expire on September 30. Failure to reauthorize the highway bill will endanger 1.8 million jobs nationwide, according to estimates released by the Senate Environment and Public Works Committee.
Competing proposals for reauthorization have been raised by both chambers. The Senate has suggested a two-year extension, with $109 billion in funding ($54.5 billion annually). The House has put forth a six-year bill offering just $39.1 billion annually, for a total of $235 billion. Both proposals are significantly lower than the $556 billion proposed in President Obama’s budget for fiscal year 2012.
With high unemployment, especially in the construction industry, a crumbling national infrastructure, and the effects of previous government spending winding down, the time is ripe for a jobs plan that includes serious investment in transportation and infrastructure.
Kristina Costa is a Special Assistant with the Doing What Works project at the Center for American Progress. Adam Hersh is an Economist at the Center.
. Daniel J. Wilson, "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act" (San Francisco, CA: Federal Reserve Bank of San Francisco, 2011), p. 33, available at http://www.frbsf.org/publications/economics/papers/2010/wp10-17bk.pdf.
. Due to seasonal employment factors, it is necessary to compare observations from the same month in different years.
. Smart Growth America, “Recent Lessons from the Stimulus: Transportation Funding and Job Creation” (2011), p. 6, available at http://www.smartgrowthamerica.org/documents/lessons-from-the-stimulus.pdf.
. “Employment Impacts of Highway Infrastructure Investment,” available at http://www.fhwa.dot.gov/policy/otps/pubs/impacts/index.htm.
. Pamela Perlich and others, “Economic Stimulus by Creating Transportation Jobs Now” (Salt Lake City, UT: University of Utah Metropolitan Research Center, 2009), p.7, available at http://metroresearch.utah.edu/reports.
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