Investing in infrastructure creates jobs and yields lasting benefits for the economy, including increasing growth in the long run. Upgrading roads, bridges, and other basic infrastructure creates jobs now by putting people to work earning good, middle-class incomes, which expands the consumer base for businesses. These kinds of investments also pave the way for long-term economic growth by lowering the cost of doing business and making U.S. companies more competitive.
There is ample empirical evidence that investment in infrastructure creates jobs. In particular, investments made over the past couple of years have saved or created millions of U.S. jobs. Increased investments in infrastructure by the Department of Transportation and other agencies due to the American Recovery and Reinvestment Act saved or created 1.1 million jobs in the construction industry and 400,000 jobs in manufacturing by March 2011, according to San Francisco Federal Reserve Bank economist Daniel Wilson.[1] Although infrastructure spending began with government dollars, these investments created jobs throughout the economy, mostly in the private sector.[2]
Infrastructure projects have created jobs in communities nationwide. Recovery funds improved drinking and wastewater systems, fixed bridges and roads, and rehabilitated airports and shipyards across the nation. Some examples of high-impact infrastructure projects that have proceeded as a result of Recovery Act funding include:
- An expansion of a kilometer-long tunnel in Oakland, California, that connects two busy communities through a mountain.[3]
- An expansion and rehabilitation of the I-76/Vare Avenue Bridge in Philadelphia and 141 other bridge upgrades that supported nearly 4,000 jobs in Pennsylvania in July 2011.[4]
- The construction of new railway lines to serve the city of Pharr, Texas, as well as other infrastructure projects in that state that have saved or created more than 149,000 jobs through the end of 2010.[5]
Infrastructure investments are an especially cost-effective way to boost job creation with scare government funds. Economists James Feyrer and Bruce Sacerdote found for example that at the peak of the Recovery Act’s effect, 12.3 jobs were created for every $100,000 spent by the Department of Transportation and the Department of Energy—much of which was for infrastructure.[6] These two agencies spent $24.7 billion in Recovery dollars through September 2010, 82 percent of which was transportation spending. This implies a total of more than 3 million jobs created or saved.
The value of infrastructure spending
Analysis of all fiscal stimulus policies shows a higher “multiplier” from infrastructure spending than other kinds of government spending, such as tax cuts, meaning that infrastructure dollars flow through the economy and create more jobs than other kinds of spending. Economist Mark Zandi found, for example, that every dollar of government spending boosts the economy by $1.44, whereas every dollar spent on a refundable lump-sum tax rebate adds $1.22 to the economy.[7]
In a separate study conducted before the Great Recession, economists James Heintz and Robert Pollin of the University of Massachusetts, Amherst, found that infrastructure investment spending in general creates about 18,000 total jobs for every $1 billion in new investment spending. This number include jobs directly created by hiring for the specific project, jobs indirectly created by supplier firms, and jobs induced when workers go out and spend their paychecks and boost their local economy.[8]
Investing in transportation infrastructure in particular boosts employment. The Federal Highway Administration periodically estimates the impact of highway spending on direct employment, defined as jobs created by the firms working on a given project; on supporting jobs, including those in firms supplying materials and equipment for projects; and on indirect employment generated when those in the first two groups make consumer purchases with their paychecks. In 2007, $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.[9]
Investing in infrastructure not only creates jobs; it increases the productivity of businesses small, medium, and large. At the most basic level, infrastructure investments make it possible for firms to rely on well-maintained roads to move their goods, on an electricity grid that is always on to run their factories, and water mains that provide a steady stream of clean water to supply their restaurants. There is a large body of empirical work that documents this. Although the specific effect differs across studies, European Investment Bank economists Ward Romp and Jakob de Haan conclude that “there is now more consensus than in the past that public capital furthers economic growth.”[10]
Because infrastructure investments create jobs and boost productivity, these investments have historically had bipartisan support. In early 2011, for example, AFL-CIO President Richard Trumka and U.S. Chamber of Commerce President Thomas Donohue issued a joint statement in favor of greater infrastructure investment in the near-term: “With the U.S. Chamber of Commerce and the AFL-CIO standing together to support job creation, we hope that Democrats and Republicans in Congress will also join together to build America’s infrastructure.”[11]
But investments in infrastructure are now being pared back as states and localities struggle with budget constraints. Even so, there is a long list of infrastructure projects that municipalities, states, and the federal government can invest in. The American Society of Civil Engineers estimates that we need to spend at least $2.2 trillion over the next five years just to repair our crumbling infrastructure.[12] This doesn’t even include things like high-speed rail, mass transit, and renewable energy investments we need to free ourselves from foreign oil and climate change.
The American Jobs Act
The American Jobs Act seeks to remedy this situation by investing $105 billion in infrastructure.[13] This should raise U.S. economic output by $151.2 billion based on economist Mark Zandi’s most recent economic multiplier for the impact of infrastructure spending on GDP.[14]
The American Jobs Act addresses a number of specific infrastructure investments. The $105 billion includes $25 billion to modernize and upgrade our school infrastructure and an additional $5 billion to modernize community colleges. We know there is great need for this kind of investment.[12] The accumulated backlog of deferred maintenance and repair for schools alone amounts to at least $270 billion.[15]
The total investment in infrastructure also includes $50 billion in immediate investments for highway, highway safety, transit, passenger rail, and aviation activities. Of that $50 billion, $27 billion will make our nation’s highway systems more efficient and safer for passenger and commercial transportation. Another $9 billion of investments will repair our nation’s transit systems, $2 billion will improve intercity passenger rail service, and $2 billion will improve safety, add capacity, and modernize airport infrastructure across the country.
In addition, $10 billion of American Jobs Act funds will be used to set up a National Infrastructure Bank that would provide loans for projects including transportation infrastructure, water infrastructure, and energy infrastructure. The remaining $15 billion would provide funding for neighborhood stabilization projects and the repurposing of vacant properties.
Infrastructure is a good investment now because it will get people to work, and at this point, given the lingering high unemployment, we shouldn’t be too concerned if projects take a bit of time to get up and running. As Mark Zandi said in August 2011:
Infrastructure development has a large bang for the buck, particularly now when there are so many unemployed construction workers. It also has the potential for helping more remote hard-pressed regional economies and has long-lasting economic benefits. It is difficult to get such projects up and running quickly—“shovel ready” is in most cases a misnomer—but given that unemployment is sure to be a problem for years to come, this does not seem in the current context as significant a drawback.[16]
We can create jobs. With nearly 14 million Americans unemployed, now is the time to make long-lasting investments in infrastructure that will not only get people to work today but pave the way for long-term economic growth.
Repairing potholes, upgrading an elementary school’s aging furnace, and replacing old water mains are all infrastructure investments. These are repairs that must be done and are often cheaper to do as maintenance than waiting to repair a totally failed system. Now is the right time for America to invest in maintaining and upgrading our infrastructure. We have millions of American workers who want to get off the unemployment queue and into a job and borrowing costs at decade lows, making it extraordinarily cost effective to make big investments today.
Heather Boushey is a Senior Economist at American Progress.
Endnotes
[1]. Danial J. Wilson, "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act" (San Francisco, CA: Federal Reserve Bank of San Francisco, 2010), available at http://www.frbsf.org/publications/economics/papers/2010/wp10-17bk.pdf.
[2]. Wilson’s analysis of the impact of the Recovery Act on employment, for example, finds that most of the jobs created were in the private sector. See: Ibid.
[3]. Government Accountability Office. "Recovery Act: Funding Used for Transportation Infrastructure Projects, but Some Requirements Proved Challenging," GAO-11-600, Report to the Congress, June 2011, available at http://www.gao.gov/new.items/d11600.pdf.
[4]. Pennsylvania Department of Transporation, "Stimulus Performance Measures: Transporation Infrastructure" (2011), available at http://www.portal.state.pa.us/portal/server.pt/document/1095314/trans_infra_-_highways_and_bridges_pdf.
[5]. Texas Department of Transportation, "Highway Report to Transportation and Infrastructure Committee (December 2010)" (2010), available at ftp://ftp.dot.state.tx.us/pub/txdot-info/stimulus/highway_report_12_10.xls.
[6]. James Feyrer and Bruce Sacerdote, "Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act" (Cambridge, MA: National Bureau of Economic Research, 2011).
[7]. Mark Zandi, "Global Policy Prescriptions: How Another Recession Can Be Avoided" (New York: Moody’s Analytics, 2011), available at http://www.economy.com/mark-zandi/documents/Policy-Prescriptions-20110826.pdf.
[8]. Robert Pollin, James Heintz, and Heidi Garrett-Peltier, "How Infrastructure Investments Support the U.S. Economy" (Amherst, MA: Political Economy Research Institute, University of Massachusetts at Amherst, 2009), available at http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/green_economics/PERI_Infrastructure_Investments.
[9]. "Employment Impacts of Highway Infrastructure Investment," available at http://www.fhwa.dot.gov/policy/otps/pubs/impacts/index.htm.
[10]. Ward Romp and Jakob de Haan, "Public Capital and Economic Growth: A Critical Survey" (Brussels: European Investment Bank, 2005), available at http://www.eib.org/attachments/efs/eibpapers/eibpapers_2005_v10_n01/eibpapers_2005_v10_n01_a02_en.pdf.
[11]. Michael D. Shear, "Chamber of Commerce and A.F.L.-C.I.O. Praise Obama," The New York Times, January 26, 2011, available at http://thecaucus.blogs.nytimes.com/2011/01/26/chamber-and-union-leaders-praise-obama/.
[12]. American Society of Civil Engineers, "America’s Infrastructure Report Card" (2009), available at http://www.infrastructurereportcard.org/sites/default/files/RC2009_full_report.pdf.
[13]. The White House, “Fact Sheet: The American Jobs Act,” September 8, 2011, available at http://www.whitehouse.gov/the-press-office/2011/09/08/fact-sheet-american-jobs-act.
[14]. Estimates based on: Zandi, "Global Policy Prescriptions."
[15]. Mary Filardo, Jared Bernstein, and Ross Eisenbrey, "Creating Jobs Through FAST!, a Proposed New Infrastructure Program to Repair America’s Public Schools" (Washington: Economic Policy Institute, 2011), available at http://web.epi-data.org/temp727/Fix%20America%27s%20Schools_Today_FINAL.pdf.
[16]. Zandi, "Global Policy Prescriptions," p. 7.