Shovel-Ready

In 2009 President Obama and the Democratic-controlled Congress passed an $800 billion stimulus package that was supposed to mitigate the impact of the recession.  There has been much debate about the effectiveness of the stimulus spending and the cost per job “created or saved.”  Other criticism focused on government’s failure to identify and fund shovel-ready jobs that would have improved and updated our infrastructure.  Much of the stimulus money helped fund state and local government positions for teachers, firefighters and other public employees.  It appears that the stimulus legislation did little, if anything, to stop the decline in certain types of construction employment, most notably street, highway and bridge construction.

Proponents of the stimulus package argue that public investments help foster greater economic growth.  Skeptics argue that projects are funded are based on cronyism and political paybacks rather than priorities for economic growth.  Economists on both sides of the argument should examine employment in private-sector construction industries during the recession and recovery.  Many Keynesian economists lament the fact that employment in state and local government has lagged during the recovery despite the stimulus package.  However, large increases infrastructure spending are not expected to result in big gains in public sector jobs.  Infrastructure investment will instead re-direct resources to private sector government contractors that build and repair the infrastructure.

The following chart shows the changes in quarterly employment in two of the biggest heavy construction industries: construction of utility systems (other than oil and gas pipelines) and construction of streets, highways and bridges.  Employment in both industries has been normalized to 100 as of the first quarter of 1990.  There are fewer employees building and fixing highways and bridges than at any time in the past 20 years.  Employment in street, highway and bridge construction is down 5.3% in the past two years and 18.5% in the past five years, and the share of total employment in this industry is at a record low.  Employment in the construction of utility systems dropped from 2007 through the end of 2009 and this industry has recovered almost 25% of its job losses.  In contrast construction in the booming oil and gas pipeline construction industry is up almost 35% in just two years.  This boom in energy construction is not the result of 2009 stimulus program, however.

 

Government spending largely redistributes resources through the entitlement system which is why the government budget is a much higher fraction of GDP than the public sector’s share of total employment.  Even when governments devote resources to infrastructure projects, the workers are typically private sector employees of government contractors.  Government spending over the past five years has been primarily on transfer programs and not infrastructure.  This is best seen by examining employment in the heavy construction industries.  Employment in highway and bridge construction is well below pre-recession levels and has even dropped in the past two years.  The situation is somewhat better for employees of firms that build and repair utility systems where about 25% of the job losses during the recession have been reversed.

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