About that 33,000 new jobs claim….
In this DFL press release , Sen Murphy states,
According to a Federal Highway Administration (FHWA) study on transportation investments, a bill of this size would create an average of 33,000 jobs a year for the next 5 years
As I didn’t believe that he made this up, I did a little digging to see what this FHWA study said. I found somethings that didn’t quite add up. First, the DOT has a “JOBMOD Employment Estimation Model” that attempts to estimate the first, second, and third rounds of job creation per $1 billion in federal spending. To summarize this model:
# First-round effects total 19,585 person-years, comprised of 12,453 jobs in the highway construction sector and 7,132 jobs in industries supplying equipment and materials (e.g., stone, concrete, rebars, and fuel).
# Second-round effects total 6,939 person-years of indirect employment caused by additional production demands in industries that supply highway construction materials (e.g., iron and steel, financing, insurance, repair, and chemicals).
# Third-round effects of 21,052 person-years result from spending by the workers employed in the first two rounds on consumer goods (e.g., DVDs, Big Macs, baseball caps, hockey tickets, bourbon, socks, magazines, and home repair).
This sounds great, but Ronald D. Utt Ph D., with the Heritage foundation found some flaws with this model in his report
Highways and Jobs: The Uneven Record of Federal Spending and Job Creation
Upon closer examination of this model, Dr. Utt finds things are not as they seem. Mainly that unless this new construction money happens to materialize out of the blue, the net effect seems to be a wash.
To the extent that financing new highways by reducing expenditures on other programs or by deficit finance and its impact on private consumption and investment, the net impact on the economy of highway construction in terms of both output and employment could be nullified or even negative.
and that maybe we shouldn’t put much weight into Sen Murphy’s 33,000 jobs per year prediction.
Because of these inherent limitations, I/O models such as the one used by the DOT should be used with caution, and their limitations and artificial assumptions clearly acknowledged. When these conditions are considered, the job-creation potential of any spending scheme will be found to be a small fraction of what such models initially report.
Hurricanes, tornadoes, and forest fires create large numbers of jobs, but they also destroy value in the process, an outcome not materially different from much of today’s federal spending on costly and underutilized light rail systems.