Democrats and Republicans, liberals and conservatives, rural and urban elected officials—all seek funding for roads and transit projects in their districts, asserting repeatedly that these expenditures will create jobs. President Obama vigorously sought to create jobs through transportation spending in the recent economic stimulus package. This seemed familiar: in 1991, when signing the historic Intermodal Surface Transportation Efficiency Act (ISTEA), President George H.W. Bush stated that the value of the bill “is summed up by three words: jobs, jobs, jobs.”
Transportation projects are not all equally effective at creating jobs or stimulating economic growth. Sound transportation investments lower the costs of moving people and goods. Short-term job creation, while vitally important to economic recovery, should not cause us to ignore the longer-term view.
Transportation dollars should be spent on programs that most enhance long-term economic productivity. ... For example, building an ill-advised rail line might give a local economy a short-term boost in employment, only to saddle taxpayers with large operating deficits in the future.
Building the Interstate Highway System created many construction jobs, but it would be a huge mistake to interpret that employment as the system’s contribution to the economy. Workers who drew salaries from the construction program benefitted, but far less than the travelers and shippers of goods who have used those facilities every day for six decades.
By building an effective transportation network, government transportation spending draws jobs to those industries that benefit from the investment. At the same time, this moves jobs away from activities that would have been financed in the absence of the transportation investment. So while transportation investment can “create jobs,” it can also destroy them.
Public officials often mention that each billion dollars of transportation infrastructure investment will create over 30,000 new jobs. This estimate relies on what is called the “multiplier effect.” Construction workers spend their income to buy hamburgers, television sets, and automobile insurance, so a given dollar of construction expenditure ends up having more than a dollar’s worth of impact, thus “multiplying” the effect of the expenditure. Unfortunately, asserting that any expenditure will create a specific number of jobs is not well supported by evidence. Actually, in the short term, construction jobs and expenditures on steel and concrete are economic costs [that weigh heavily on the budget.]
To create or preserve jobs in the short term, it might be more effective to use federal dollars to subsidize the operations and maintenance of transportation systems. Dollars spent on operating bus lines, for example, are spent largely on labor and thus quickly recirculate in the local economy. By contrast, dollars spent on capital or construction projects may include costly expenditures on concrete and steel imported from outside the US. Construction jobs do not inherently have higher multipliers than jobs driving buses.
Identifying a project as shovel-ready in no way assures that it will produce long-term net economic benefits. Simply equating any transportation investment with jobs and gains for the economy cannot remain a sound basis for public policy. America needs to do a better job of systematically evaluating alternative investments.
One way to judge a public investment is to determine whether or not it generates a rate of return to society that exceeds the return earned on other investments in the private or public sectors.