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Simonson Says: Infrastructure Spending: How many jobs? How soon?

December 22, 2008
Two charges against providing economic stimulus through infrastructure spending are that it leads to little employment, and that the money flows too slowly to help during a downturn. Recent estimates from the Federal Highway Administration (FHWA) and the U.S. Army Corps of Engineers show the job potential is large. The circumstances of the current recession suggest the jobs would be added quickly. FHWA commissioned a team at Boston University to model the impact of federal-aid highway money. A memo prepared by FHWA staff last spring stated that the model showed that $1 billion supports roughly 28,000 jobs. One-third of the jobs would be direct, local construction jobs. Another sixth would be “indirect” – mining, manufacturing and services workers hired as the contractors order crushed stone, manufactured materials, engineering and other services. These jobs would be a mix of local and nationwide jobs, depending on the materials, equipment and services required and the industries represented locally. The other half of the jobs would be “induced” throughout the nation by the spending of the direct and indirect workers and owners in the businesses that received the direct and indirect payments. The chief economist for the Corps calculated this fall that the mix of projects the Corps spends money on supports roughly 17,000 jobs per $1 billion, based on the assumptions in the FHWA study. Those assumptions include sufficient underused workers and production capacity in each industry so that the jobs are net increases, not merely bidding workers away from other jobs. The assumption of excess capacity is all too valid today. The Bureau of Labor Statistics reported on December 5 that construction employment fell by 568,000 jobs (7.6%) from November 2007 to November 2008. Heavy and civil engineering construction, the category that covers many firms doing infrastructure work, shed 86,000 jobs (8.5%) from the high point in June 2007 through November 2008. Of course, how soon workers are (re)employed depends even more on how quickly governments can award contracts. Here, too, the current situation is unusually favorable. Many state and local agencies have had to shelve projects they were close to awarding a few months ago, as frozen bond markets and falling tax receipts forced deferrals. Agencies are not only compiling lists of “ready to go” projects but taken steps to expedite contract awards as soon as they know how much money the feds will provide, and what strings will be attached. For more information, contact Ken Simonson at (703) 837-5313 or simonsonk@agc.org.
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