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Transportation: The Infrastructure Conundrum

Are Jobs-Centric Projects Good for the Economy Over the Long Haul?

In 1991, with the U.S. economy in recession and the unemployment rate hovering near 7 percent, President George Bush was casting about for ways to put people back to work. Standing in a muddy field outside Dallas, with a spool of cable serving as a table, Bush signed into law a surface transportation bill and declared the measure could be summed up “in three words — jobs, jobs, jobs.”

Infrastructure spending was less contentious two decades ago than it is today, with Democrats making generous claims for the job-creating powers of economic stimulus projects and Republicans characterizing such undertakings as misguided, mismanaged and wasteful.

Acceptance of the axiom that says infrastructure spending creates jobs spans decades and, broadly speaking, is endorsed by leaders of both political parties. Interest groups and academics have studied the question and written reams of reports. Economists generally agree on its stimulating effect.

What is less clear is how many jobs are created for every dollar spent, whether such spending is the best economic use of scarce resources and even whether a jobs-centric focus is best for the nation’s long-term economic health.

The source of most calculations of the job effects of infrastructure investments is the Federal Highway Administration, or FHWA, which last updated its numbers in 2007. According to the FHWA, every $1 billion of federal spending on highways “supports” 10,300 construction-oriented jobs, 4,675 jobs in supporting industries and 15,094 jobs that are considered “induced” — a total of about 30,000.

Construction-oriented jobs are defined as those working directly for construction companies or for companies that are directly connected to the work (for instance, a business directly providing paving materials or concrete for the project).

Jobs in supporting industries are those that are indirectly involved — as an example, FHWA says a company that produces guardrails would be counted as “construction-oriented,” but a firm that creates the sheet metal to make the guardrails would be considered part of the supporting cast.

And induced-employment figures include any and all jobs supported by related consumptive spending — for instance, when a construction worker or a line employee at the guardrail company uses  wages to buy a hamburger for lunch at a local restaurant.

These figures, however, come with a host of caveats, which almost always are glossed over by politicians and interest groups who have a stake in the promotion of transportation spending.

The figure most often cited — that $1 billion of highway investment equals 30,000 jobs — is based on the assumption that those highway projects don’t involve acquiring any right of way. But FHWA notes that, historically, about 7 percent of highway projects do involve acquiring rights of way. Accounting for this reduces the jobs-created figure to about 27,800.

And then there is how the jobs are counted — in fact, FHWA refers not to jobs but to “person-years.” For example, 100 person-years could be 50 jobs supported for two years, or 100 jobs supported for one year. “The temporal aspects of the jobs will correspond to the nature of the construction project,” FHWA notes.

Also, generalizations of these figures often fail to note that the job figures are the number of jobs “supported” by this spending, and not  necessarily those that are created. FHWA says this includes “new jobs” to the extent that it results in the hiring of unemployed labor; “better jobs,” as those who currently hold a job are able to move up to a higher-paying one; and “sustained jobs,” in which employees that are retained in their current jobs.

Martin Wachs, a senior principal researcher at Rand Corp. and formerly a professor of civil and environmental engineering and city and regional planning at the University of California at Berkeley, argues that suggesting an amount of infrastructure spending will create a specific amount of jobs “is not well supported by evidence.”

Writing in ACCESS, the University of California Transportation Center’s magazine, Wachs argues that actual employment varies widely from one project to another.

Thinking Long-Term

Statistics aside, there is the matter of whether the jobs being created, in particular those in the proverbial “shovel-ready” projects — the ones that result from short-term stimulus spending and can be started quickly — are the right kinds of jobs.

Matthew Slaughter, associate dean at Dartmouth’s Tuck Business School and member of the Council of Economic Advisers under President George W. Bush, contends that infrastructure investment is important but that the right kind of infrastructure investments need to be made in order to create jobs that will stand the test of time.

“The biggest value for higher infrastructure spending in America today is not the immediate number of jobs it might create, but the bigger benefit to the U.S. economy is, it’s going to create a business environment that’s going to be able to grow lots of jobs linked to the global economy,” Slaughter said. “It’s just not realistic to expect infrastructure spending to be this magic bullet that creates millions and millions of jobs next quarter or next year.”

Ideally, Slaughter says, the United States should be thinking ­globally.

“We can’t just go back to creating a lot of jobs linked to household consumption and homebuilding,” Slaughter said. “We need jobs linked to dynamic growth outside of America, and those tend to be jobs created by multinational corporations in particular. And those companies, they’re the ones that rely most heavily on a high-quality, reliable infrastructure system.”

Ken Button, a professor of transportation policy and economics at George Mason University, said it’s important to get beyond job figures and ensure that the right kind of infrastructure is being built.

“What you’ve got to think about is this — the right infrastructure in the right place, properly operated, creates jobs. I don’t just mean jobs in building it. It enhances the economy and creates long-term jobs. Building infrastructure in the wrong place creates jobs in the short term and does nothing in the long term,” Button said.

The ideal infrastructure project creates something Button likes to call the “perpetuity effect” — it creates short-term construction jobs, long-term maintenance and operations jobs; stimulates existing business; and can transform an area.

A classic example is the Hoover Dam. Construction in the early- to mid-1930s created more than 5,000 jobs, but, more importantly, the project transformed much of the southwestern United States, helping it to grow by providing power throughout Nevada, Arizona and California.

Button also cites Orlando International Airport, which was built in the middle of a swamp.

“The only reason you have Disney World there is because you’ve got a large airport,” Button said.

Choosing With Care

Of course, successes are easy to see with hindsight, and Button acknowledged that it might be difficult to argue for creating an enormous new infrastructure project in an area that doesn’t already seem to need it — like two bridges in Alaska that have become known as the “bridges to nowhere.” Proponents of those bridges argued that though the area is sparsely developed now, building them would facilitate a business boom.

“Picking winners is extraordinarily difficult,” Button said.

But for Jose Gomez-Ibanez, a professor of urban planning and public policy at Harvard University, not every project has to be enormous to be considered worthwhile.

“I don’t think you necessarily have to transform a landscape, though those are the things that really inspire people. “You can do a lot of good just like the WPA did in the ’30s, building post offices and other public facilities that are needed. In this modern context, repairing the roads, maintaining the Interstate system and so on are investments that are very worthwhile.”

However, Gomez-Ibanez said he was concerned that in the current political and economic environment, with short-term jobs a concern, the quality of infrastructure projects receiving funding could suffer.

“We can create jobs by building the pyramids or digging ditches and filling them in, but that’s not going to leave much of a long-lasting legacy, and that matters as well,” he said.

Wachs, the Rand Corp. researcher, said that it’s vital to prioritize the long-term economic effect of infrastructure projects, because in the short term, “construction jobs and expenditures on steel and concrete are actually economic costs rather than benefits unless they contribute to long-term economic productivity.”

“If we rush to spend money in the hope that we can literally dig our way out of recession,” Wachs wrote, “well-intended spending on transportation for the purposes of job creation could fund investments that, in many cases, cost the economy far more in the longer term.”

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