Commentary / Infrastructure Bank

Infrastructure Bank Means 25 Million Jobs

How Many New Jobs Would the National Infrastructure Bank Create, and What Would They Pay?

by Alphecca Muttardy

The following article was written in response to questions about the functioning of a proposed National Infrastructure Bank (NIB), which is being discussed on Capitol Hill and in political circles around the country. The latest version of the draft bill can be found here . Mrs. Muttardy, a macro-economist and 25-year veteran of the IMF, is a leading spokeswoman for the informal coalition promoting and educating citizens for the bank.–Nancy Spannaus

Infrastructure Bank Means 25 Million Jobs

High-technology construction workers will be in high demand.

Aug. 5, 2019–One great question is how many new jobs will be created by $4 trillion in new spending for infrastructure, and how might those new jobs change employment and pay levels over time? Regarding the count of jobs, there are a number of estimates of new jobs created from increased infrastructure spending (all estimates pro-rated to a common level of $100 billion in spending):

  • The Federal Highway Administration estimated that every $100 billion invested in the nation’s highways supports 2.8 million jobs, of which 34% would go to on-site construction jobs, 16% to supplier industries, and the remaining 26% of jobs throughout the rest of the economy.
  • The Council of Economic Advisers estimated in 2011 that every $100 billion in infrastructure investment creates about 1.3 million new jobs. Their estimate was used by Democrats, who put forward a $1 trillion infrastructure plan in 2017.
  • The Economic Policy Institute (EPI), in their 2017 study of all economic benefits from infrastructure investment, concluded that each $100 billion in infrastructure spending would boost job growth by 1 million full-time equivalent jobs.

The reasons for differences in the above estimates? First, the year the study was done matters, because infrastructure costs are doubling every 10 years, especially on account of rising costs for construction materials and to meet regulatory demands. Second, not all new money can be spent at once, but needs to be phased over time. Accordingly, workers might move from one new project to another that is scheduled later. Using the most conservative EPI study above implies that $4 trillion in spending would support 40 million full-time equivalent jobs. However, if the $4 trillion is spent over 20 years, and each project requires a person (engineer, electrician, road crewman, etc.) on the job for an average of 1.6 years, then a minimum of 25 million workers would be needed to rotate in and out of the new jobs that the NIB creates.

The chart below summarizes the potential sources for the 25 million jobs required, which are discussed above.

Jobs to be created by NIB

Broad Benefits

So, where would the 25 million workers to fill these new jobs come from?  As of end-2018, we estimate that roughly half might come from those eligible to work who are currently discouraged by low wages or the unavailability of full-time jobs in their area (see Table below).  And the remainder might come from those already in the workforce, who switch over to infrastructure jobs for reasons of: higher pay, stable employment, and benefits. The NIB proposal would look to labor unions and colleges to train all of these workers.

Finally, what might the new jobs mean for wages, especially since the scale of the National Infrastructure Bank is so large? On the one hand, there will be significant demand for workers that will bid up all occupational wage levels.  Also, construction contracts financed under the NIB would require that Davis-Bacon Wages be paid. On the other hand, wage increases might be suppressed, if high inflation ensues, and the

Federal Reserve tightens the money supply to combat the inflation (that raises interest rates, and causes businesses to reduce their borrowing and spending).  At the same time, GDP growth is expected to rise sharply, as infrastructure investments lead to greater productivity and an increase in private sector investment – that would require a larger money supply to lubricate the growth.

History suggests that substantial wage compression – pushing all occupational wage levels from the bottom upwards – would be the fundamental outcome.  In their book, Unequal Gains, Professors Lindert and Williamson investigate the underlying causes of The Great Leveling, the period from 1900-1970 when income inequality fell sharply. They conclude that “market fundamentals … could have pushed the entire occupational wage structure toward equality even in the absence of changes in government wage-setting policies [like the Minimum Wage].” Their conclusion is echoed by occupational wage data. During the period 1933-1957, when FDR’s Reconstruction Finance Corporation was financing lots of infrastructure projects that hired lots of workers, the pay of unskilled workers rose by nearly 400 percent (well above the Minimum Wage, first set in 1938).

Thus, we expect that the operations of the NIB will create 25 million new jobs, raise wages substantially from the bottom up, through market forces, and thus provide Americans with a living wage for all.

 

 

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One Comment

  1. Lisa Ditalia says:

    Great article Nancy and Alphecca always with the coherent reasoning behind the difficult questions. We need the NIB now so we can start this massive employment projects before more and more workers despair of their prospects.

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