How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth

Robert Pollin, James Heintz and Heidi Garrett-Peltier

This study commissioned by the Alliance for American Manufacturing (AAM) shows how investment in the nation’s infrastructure could be an effective approach to creating new jobs. Roughly 18,000 new jobs would be created for every $1 billion in new infrastructure spending on the nation’s transportation, energy, water systems and public schools.

The report, undertaken for AAM by a team of researchers at the University of Massachusetts-Amherst’s Political Economy Research Institute (PERI), found that at least 2.6 million new jobs could be created by increased spending in a “high-end” scenario of $148 billion per year (including $93 billion in public investment). While the construction and service industries will see the vast majority of job creation, manufacturing, which has been devastated by the current economic crisis, also would benefit from such an infrastructure stimulus, seeing an increase of 252,000 jobs nationally.

The benefits for manufacturing would be felt throughout the economy, with new jobs created in such industries as fabricated metals (38,000), concrete and cement (21,000), glass-rubber-plastics (15,000), steel (9,000) and wood products (8,200).

The report further notes that manufacturing employment gains from such an infrastructure program could be improved significantly if the percentage of U.S.-made material inputs were increased. Simply put, a higher share of domestically produced supplies would have a significant impact in terms of generating new manufacturing jobs. Utilizing 100 percent domestically produced inputs for infrastructure projects would yield a total of 77,000 additional jobs nationally. Manufacturing would account for a significant 69,000 of that increase, a 33 percent jump in total manufacturing jobs generated.

The report’s authors, James Heintz, Robert Pollin and Heidi Garrett-Peltier of the University of Massachusetts-Amherst’s Political Economy Research Institute (PERI) noted, “Public investment makes substantial contributions in terms of employment, economic growth, trade competitiveness and essential services to the U.S. population. Such investments can also become a key driver in building a clean-energy economy. The public infrastructure portion of this program would also increase private-sector growth by about $80 billion per year, which amounts to a productivity dividend of about $260 per year for every U.S. resident.”

Under such a scenario, the nation would simultaneously be addressing its tremendous infrastructure needs while creating new jobs across various industries. As the report notes, public investment in infrastructure has fallen sharply since 1980, resulting in the recent deterioration of various parts of the nation’s public infrastructure. Crumbling roads and bridges, antiquated and unsafe schools—all are part of a vast “infrastructure deficit” the nation now faces.

In contrast to an infrastructure spending program, the report notes that alternative economic stimulus programs, such as tax cuts, would create, at best, only 14,000 jobs per $1 billion in spending. This means 22 percent fewer jobs would result from a tax-based stimulus than from infrastructure spending. This is primarily because households spend a greater share of their income on imports.

The researchers outlined two scenarios for increased infrastructure spending. A “baseline scenario,” which would simply meet basic needs, would require $87 billion in additional spending per year and create 1.6 million new jobs. A “high-end scenario,” which would accelerate rebuilding and address serious unmet needs, would require about $148 billion in new spending from the public and private sectors and create about 2.6 million new jobs.

The “high-end scenario” the report outlines would help fill the gap left by years of inadequate investment. Today, for example, only 44 percent of the nation’s roads are in “good condition,” and 26.7 percent of bridges are “structurally deficient,” while 13.6 percent are “functionally obsolete,” according to the U.S. Department of Transportation. Mass transit investments would need to increase by $3.2 billion a year just to maintain current operating systems. By 2020, 80 percent of the locks on the nation’s waterways will be functionally obsolete. And the Corps of Engineers has identified 122 levees that need additional maintenance and repair.

The accelerated approach would create about 1 million new jobs in construction, 252,000 in manufacturing, and most of the rest in service industries. The 2.6 million new jobs created this year would reduce December 2008’s unemployment rate from 7.2 percent to 5.5 percent.

Expanded infrastructure investments would have significant benefits for the private sector beyond improving productivity and overall economic growth. Sustained over time, for example, it would raise the annual growth rate of manufacturing by nearly 1 percentage point and would contribute to the nation’s gross domestic product.

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