Wednesday, April 28, 2021

Infrastructure and jobs

William Gropper, Construction of the Dam, 1938

To many on the left, it's always 1933. Building "roads and bridges" will "create jobs," soaking up the mass army of unemployed desperate for work that they seem to see. 

Driving around though, I notice that we build roads with big machines, not lots of people. And construction jobs are high-skill jobs, not people with shovels. "Shovel-ready" itself is a misnomer. Nobody uses shovels on a construction site anymore, they use a backhoe. Neither you, reading this, nor I, nor an unemployed Wal-Mart greeter or bartender could do much of anything useful on a road construction site. 

On a lark, I went to the Bureau of Labor Statistics to see just how many people are employed on roads and bridge construction. 


Latest

Feb-Mar change

Total nonfarm

144,120.0

916

Construction of buildings

1,689.3

17.8

Heavy and civil engineering construction

1,062.9

27.3

Water and sewer system construction

183.8


Oil and gas pipeline construction

134.9


Power and communication system construction 

211.3


Highway street and bridge construction 

338.3


Specialty trade contractors

4,714.2

65.0

For perspective, total nonfarm employment is 144 million people, up nearly a million in the last month. That's a lot, usually 200,000 is a good month. Well, we're recovering fast from the pandemic. In case you didn't hear the pounding of nails, building construction employees 1.6 million people, with 4.7 million more in the trades. (We're not so much building new housing as building in new places.) 



Total unemployment is 9.7 million right now, down from 23 million at its peak. 

Roads and bridges employ 338,000 people. The total is a half of this month's gain alone.  We could use some water construction here in California, though it's not going to happen, and with only 184,000 people employed there looks to be room to expand. 135,000 are building oil and gas pipelines. Uh-oh.

But these are drops in the bucket. In one sense that's good news. When, someday, it dawns on Washington that 30 million jobs is a cost, not a benefit, it means we could get some roads and dams without needing to hire too many people. (The main barrier to infrastructure remains legal impediments, exploding costs, and poor choices.) 

But as far as the jobs, and those beautiful WPA murals and heart-wrenching Dorothea Lange photographs.... well, it's not 1933, and where it is, high-skill, machine-heavy, road and bridge construction is not the answer. 

I was inspired by Marginal Revolution covering Garrrett Jones tweet coverage of Valerie Ramey's paper showing that infrastructure spending has no stimulus effect. This point is much simpler. 


22 comments:

  1. Also lumber prices have shot up over the last few months, so that looks like being a bottleneck.

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  2. If, instead of using tractors, we used spoons, we could create lots of jobs! :-)

    Stolen from Milton Friedman.

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    1. When my relatives complain about "working for Wal-Mart" because they are forced to use a self-checkout, and it costing jobs, I suggest maybe we should also discourage the use of forklifts in the loading dock, because those cost jobs too.

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  3. Engineering capital projects can take upwards of decades to complete, depending on the size and scope of the project and the difficulty or ease in obtaining the necessary state and local permits. Ergo, V. Ramey's observations (NBER paper #W27625) should not come as a surprise.

    Should public capital works be judged based upon the number of direct man-hours of construction and engineering labor required to undertake the capital works, in absolute terms or relative to total employment numbers in the economy? The answer will depend on how the benefit-cost tradeoff is structured. The unskilled labor input is generally a small proportion of the total labor input; the value-added by unskilled labor is diminimis in general. On the other hand, demand for skilled labor inputs in public works will increase demand for new skilled labor provided there is a shortage of skilled labor to begin with. The fast-order cook might be tempted to undertake a one-year technical licensee course to upgrade his/her skills to qualify for a higher-paying job in construction if there is an increase in demand for skilled construction workers promising multi-year employment in the construction sector. When the fast-order cook leaves the restaurant for school, a vacancy opens up and this draws applications for employment from those who may not be otherwise employed. Employment is 'chained' in this way like holes in a lattice in which holes move under the influence of an externally imposed force field.

    Public works construction projects may increase spending in locales that otherwise have low expectations of revenue growth. The additional spending in those locales may result in increases in indirect employment to provide local services to the project. Should we neglect to count that increased employment as a consequence of the capital works?

    The over-arching question is whether the scope of the government's proposed bill is the most efficient means to induce the desired economic growth in the long run, given that the proposed expenditure must be paid for out of future government revenues.

    If the objective is to increase employment in the short-term, then providing subsidies to encourage education opportunities to the unemployed or to individuals currently out of the workforce to improve skills might be the better (more efficient) approach to take. On the other hand, if the objective is to pay-off a constituent, say, union labor, then subsidies to encourage skill improvement amongst the under- and un-employed would not be the most efficient means of achieving that objective.

    Alternatively, one might take a page out of the PRC's play-book and build shipyards and construct naval vessels, airports and airplanes, missile launchers and missiles to launch, tanks and tank transporters, etc., to support any future conflict with the PRC in the western Pacific. Those assets require people to build and maintain them once built, and this would translate into multi-year employment for those qualified in the skills needed to do those jobs. This approach would be almost entirely within the "buy American" doctrine for keeping the work and dollars expended in the U.S.--a double bonus, so to speak. Economic efficiency would be traded off against ensuring that the PRC's expansionary drive is more likely to be contained than if the programme sketched above isn't undertaken. The employment response would be of the 'pull-through' variety. But, military spending is anethema to the left-of-center political class and inadmissible as an employment programme.

    Does the government's proposed (floated) bill make the most sense? Ans.: It depends on the purpose. Viewed from the perspectives of economic efficiency and affordability, the answer is probably not, a.s. As a political statement, it may serve its partisan objectives. Rationality is relative--in politics, it's relative squared, a.s.

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    1. Capital projects don't take decades to complete. Even projects as large as Hoover Dam only took 5 years from contract to RDA saying it was done. The empire state building was only a year.

      China did a green field solar grade silicon production plant equal to some 30% of the worlds capacity in 15 months. That is why they produce the cheapest solar power in the world. We couldn't dream of permissions in less than a decade.

      In WW11 we did the Manhattan Project in less than 1/2 a decade starting from almost zero.

      Only two problems with capital projects, bureaucratic delays and union labor costing way too much.

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  4. As a Bureaucrat Economist I have spent most of my career trying to get politicians to stop talking about creating jobs. Government projects create work not jobs. If you want to subsidize a plastic plant do it because you want to create more plastic not because you want to create more jobs. But I'm mostly screaming into the void, because there's some economic astrologist out there with his input-output model ready and willing to tell the politicians what they want to hear.

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    1. Why on earth would want the government to create more plastic that the private investor want to create?

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  5. We should be wary about unemployment numbers as they are, since they also include part time workers, some of which are also the underemployed. (LFPR has rebounded a little but it still sucks compared to where it was in 2007. A few % points down are big swings given the size of the working population).

    Look:
    https://fred.stlouisfed.org/series/CIVPART

    Pre and Current Pandemic Life:
    2/2020: 63.3
    3/2021: 61.5

    Yes, huge drop in April 2020: 60.2

    Taking that into account...I see this as a big structural unemployment problem just waiting to get worse. And, add to it lots of low paying unskilled labor? The mismatch along with the flood, hrmm, I wonder what that does to S/D models...

    So, not a pretty picture.

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  6. Whenever I pass a road construction site I see five people standing around and doing nothing. I can do that, and so can you. I also see two people holding stop signs. Also within my range of capability.

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    1. Compare the speed at which China builds "stuff" compared to the US. They have a big stick, though, and apparently, not afraid to use it either.

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  7. This is a rather narrow (willfully ignorant?) view of the jobs value of road infrastructure. Better transportation improves economic development in the private sector, which leads to jobs. It's not just who builds these improved roads, but the people who drive the trucks on them and make the trucks, it's the people who work in the businesses whose customers who use the improved roads.

    Also, this is a massive strawman "To many on the left, it's always 1933. Building "roads and bridges" will "create jobs," soaking up the mass army of unemployed desperate for work that they seem to see." given that Biden's plan extends far beyond roads and has in fact been criticized from the right for doing so! In fact, to read the statements of politicians, you would think it is the right that wants roads and nothing else.

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    1. x10000... Right now, I'm not employed by the people that made the computer which I'm typing on, nor did I dig the fiber-optic cable that carries this transmission. But, somehow, those things have improved my life immensely, with the occasional exception of exposing me to armchair "analysis" such as this.

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  8. It's not clear to me that we are optimizing the labor/capital inputs in infrastructure projects. In my town, we are looking at a 2M bike path that is just over one mile. From my non-technical perspective, it looks about as complicated as an Eagle scout project. Why not spend 500K on unskilled labor and see how far we can get?

    Same when Seattle spent 1B on a 1 mile waterfront tunnel. The drill broke and took a long time to fix. That money buys a lot of shovel hours.

    Give some people a chance to work off their court fines.

    Lots of time government projects serve two or more priorities (affordable housing that is also LEED certified, for example). Why not have preferential bidding for contractors that use unskilled labor. Just accept the fact that a lot of men are close to ZMP in service sector jobs and give them a shovel.

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  9. Politicians know infrastructure is pork, not the job creator they claim. Next political/socialism snow job is forcing employers to pay low skill workers who create $ 3-5/hour value a $ 15 + per hour wage.

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  10. The question is whether government can pick the optimal infrastructure projects. The answer is no.

    1. Broadbrand - Have they considered how 5G will displace the current broadband systems? How about 6G? How about the new broadband systems Bezos and Musk are launching into low earth orbit? No, the WPA redux is anachronistic.

    2. Mass Transit - A socialist dream but will it be optimal tomorrow? With EV/AD advances, the optimal transportation will be point to point vehicles sized to the task at hand. Imagine a one or multi person pod taking you from point to point carbonless. 40 ton empty busses driving fixed routes is antiquated and environmentally unsound.

    3. Freight Railroad support - This sounds great until you actually use the railroad for freight. It takes 17-42 days to cross half the country. This makes perishable shipments impossible. Soon, the country's Interstate Highways will be filled with EV/AD cargo containers running 6 hours on the road/2 hours charging. This will cut transit times y more than 50% while being 100% carbon free.

    The current infrastructure plan is nostalgia for the 1930's New Deal programs and the 1960's Great Society programs that failed. If the government wants to push this type of infrastructure, they should focus on continuing deregulation.

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    1. Well put.

      Here in California the $80 billion (budget, who knows in the end) "high speed" train should come online just as the state forces us to scrap the last gasoline powered car, truck or bus, thereby neatly eliminating all of the train's carbon reductions.

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    2. Unknown,

      "The current infrastructure plan is nostalgia for the 1930's New Deal programs and the 1960's Great Society programs that failed."

      Here is a list of Great Society programs instituted by LBJ:

      https://en.wikipedia.org/wiki/Great_Society#Education

      How many of these programs / institutions still exist today?

      Not sure how you define failure, but I would concede that anything that sticks around for 50+ years even with full Republican control of government (House, Senate, Presidency) is a raving success.

      The failure was the guns portion of Johnson's "guns and butter" policies. American intervention into Vietnam was an abject failure that Johnson didn't stick around to take the heat for.

      Have the Republicans come up with anything that has staying power?

      Reagan tax cuts reversed by his fellow Republican Bush Sr?
      Trump tax cuts about to be reversed by the current administration?

      Yes, Reagan helped bring an end to the Cold War.

      Let me conclude with this - how government pays for things is just as important as what government spends the money on.

      If Republicans don't want to raise taxes to pay for stuff, then don't raise taxes.

      If Republicans don't want to increase debt to pay for stuff, then don't keep borrowing.

      If Republicans don't want to "print" money or monetize debt to pay for stuff, then don't do it.

      That leaves one option left - equity.

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    3. The persistence of failed programs does not indicate a success. It indicates an inability of government to make hard unpopular decisions. If you analyze the federal government using engineering control system theory, you will conclude the system is unstable.

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    4. "If you analyze the federal government using engineering control system theory, you will conclude the system is unstable."

      If I was to use engineering to look at the stability of government, the first step would using structural engineering to determine stability.

      Let's see - three branches of government each with distinct powers, responsibilities, and limitations is a pretty good place to start. Kind of reminds me of the structural stability of steel structural framing or the Great Pyramids.

      If instead you are referring to is the inherent instability of our two party political system - I would say - absolutely. Mark Cuban (Dallas Mavericks owner) makes the same observation here:

      https://ivn.us/posts/shutting-down-the-two-party-duopoly-is-on-the-ballot-in-2020

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    5. This comment has been removed by the author.

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    6. If I were to analyze the federal government from an engineering control system theory I would first observe that for a stable system you need THREE control variables - Position, Integral, Differential (PID).

      I would then look at the federal government finance using only taxes and debt (two control variables) and conclude that it is unstable because it is missing EQUITY.

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  11. https://www.vox.com/policy-and-politics/2017/2/25/14728622/kevin-hassett-cea-economic-advisers

    He expanded on this idea in 2013 testimony to Congress’s Joint Economic Committee. While Hassett is generally skeptical of fiscal stimulus, and was vocally critical of President Obama’s stimulus package, he came to view long-term unemployment as a severe crisis requiring direct government intervention.

    “It is clear that something terrible happens to individuals as they stay unemployed longer, but that this negative effect is not responsive to normal policy interventions,” he told the committee. Accordingly, it is imperative that we think outside the box and explore policies that reconnect individuals to the workforce.

    "Those policies could include, he continued, a short-run jobs program that recruits the long-term unemployed to assist with the normal functions of government."

    Apparently there are both Democrats AND Republicans that think it's still 1933.

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