At a time when unemployment in NZ is stubbornly high (at least compared to levels in recent years) and investment in infrastructure has been touted as a major way of keeping people in work, it might be a useful idea to consider the relative effectiveness of different types of infrastructure investment in generating jobs. A study from the US suggests that states which have spent ‘stimulus money’ on road maintenance and public transport have generated far more jobs per dollar than those which built new roads and new bridges.
The report, “Recent Lessons from the Stimulus: Transportation Funding and Job Creation”, analyzes whether states made the best use of transportation dollars in the American Recovery and Reinvestment Act. The analysis comes two years after passage of the Recovery Act doled out $26.6 billion in flexible transportation funds to the states.
The findings are pretty simple to summarize:
According to data sent by the states to Congress, the states that created the most jobs invested in public transportation and projects that maintained and repaired existing roads and bridges. The states that ranked poorly predominantly spent their funds building new roads and bridges.
Historically, investments in public transportation have generated 31 percent more jobs per dollar than new construction of roads and bridges. However, SGA’s findings show that the payoff was even larger in Recovery Act spending, with public transportation projects producing 70 percent more jobs per dollar than road projects.
You can read the whole study here. Some of the figures relating to public transport’s effectiveness at generating jobs is shown below (if you’re wondering what ARRA is, it was the ‘Stimulus Act’:
Of course we don’t invest in infrastructure solely to create jobs – there has to be a benefit from the infrastructure improvement itself. But over the past couple of years the government has certainly ‘sold’ the fact that its investment in infrastructure (mainly new motorways) has been crucial in ensuring the construction industry has stayed in business. This report would suggest that much of that money could have generated even more jobs if it had been more wisely spent.
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Creation of jobs should have nothing at all to do with decisions on transport funding. The greatest number of jobs will come from the most labour intensive projects. Employment is simply a factor of production, decisions on where money goes should reflect net benefits to those who pay for it.
The inane part of the US analysis is it ignores how jobs are destroyed by taxation beyond certain levels, and are certainly destroyed by the government crowding out private sector borrowing by being the biggest borrower in the markets.
Liberty, I’m not saying that it should (I’m somewhat agnostic on the matter). My point is that this government has made a big deal out of keeping people in work by building new roads and I’m simply showing that they could have got even more “bang for their buck” had they invested elsewhere.
It may be that the government doesn’t actually give a damn about transport projects creating jobs – in which case they should shut up about it.
A big deal? The government have mentioned that some projects that were going to go ahead anyway are being brought forward. That seems a reasonable measure if you’d already decided that a project was justified. But the only project that I’ve seen mentioned as being mostly intended as a jobs creation scheme has been the cycle path. I think the cycle paths (plural now, since the idea of a single national path has been thankfully scrapped) are a good idea for recreational and tourism purposes, but even Key has realised that the employment benefits are negligible and he’s doing his best not to mention them these days. I suspect he hopes that everyone forgets the paths were ever mentioned in that context.
Stimulus has been thoroughly discredited as a strategy for dealing with recession. You just can’t fix economic problems by wasting money. Surely Japan has proved that beyond a shadow of a doubt.
Actually, smart stimulus spending absolutely deals with recessions. The problem has been stimulus money being, as you put it, wasted. Nonsense make-work projects, and talkfests galore, that don’t generate real jobs and have no long-term benefit.
NZ’s problem is that we’ve got a government that wants to slash public spending and civil servant numbers right at a point in time where we’ve got rising unemployment in the private sector. Is it better to pay the dole to these people, and reduce their employment prospects in future when they’ve been hunting for jobs for months, or to keep them employed and spending and then lay them off once the economy is picking up and there’re jobs available for them in the private sector? It’s that kind of thinking that has ensured that Keynesian economic theory fails, rather than a flaw in the theory itself. Spend them money wisely, and it will work exactly as intended. Waste it, and you may as well never have spent it to start with.
I don’t think we should underestimate the employment benefits for what is a relatively small investment in the NZ Cycle Trail Project. I see that the Govt is estimating that there will be ~500 construction jobs from their $50m investment in the cycleway, not to mention the follow-up work in the regions (e.g. estimated that there are about 75 ongoing FTEs related to the existing Otago Rail Trail). Now if $50m can generate 500 jobs, I’d be pretty impressed if the $5bn of RoNS can generate an equivalent 50,000 jobs (i.e. a third of our unemployed numbers)…
so far there have been 200 jobs in 2 years from the cycle way, well within the margin of error of employment figures. Also these are labour intensive jobs. Lots of money for the RONS will be spent of bridges, tunnels, rock, big excavators etc. So your jobs estimates are totally misguided.
Far better ways of creating long term jobs with $5 billion than RONS.
Sometimes it matters I would think.
One of the advantages of public projects is that you can do them when there are economic downturns and there is an oversupply of labour, which means the cost to get labour for the project would not be as high as it would be at any other time. And you can get that money flowing through the economy.
Taxation burden, yes. But if these projects were not pursued, would tax revenue be higher or lower?
It might be lower because the economy would go into recession- without business and money flowing, there can be no tax revenue! I can’t remember who it was, maybe it was Milton Friedman, but someone proposed “helicopter money” for these situations, where you just get a helicopter and dump cash on people from the air to get the economy started as a form of stimulus. Surely, it would be better to spend that money on doing something
useful like projects that have been on the backburner, than helicopter money.
There is also a legitimate need to get public works projects done otherwise the economy will have trouble growing. No business likes to set up in a city with poor transport, poor infrastructure, a sick or unhealthy workforce, a public domain that is unattractive to potential workers, poor telecommunications, poor tertiary education systems, and the list goes on. It’s a virtuous cycle and you need both government and private, because each has their own best-do roles.
I can agree with you that the way the analysis looks can appeal to populism and be overly simplistic.
I was going to watch the Perth videos in full on your blog, but it appears to be down 🙁
Thanks. You can find them all on youtube as well. It seems fine on my end.
Perth managed to do their project without federal government investment as I understand it, and I think (correct me if I am wrong) they also did it at the height of a mining boom too.
Its allowed TOD to take off around the stations. So government spending is not always a bad thing- the only right answer is “it depends” I think.
It keeps taking me to the wordpress homepage rather than your blog 🙁
<—- Use the link on the menu on the left, its above 'Buzzer' and below 'Better Transport'.
Its at wordpress.com not wordpress.org. I’m guessing that’s the issue.
In terms of stimulus packages, the proposals that work best are shovel ready projects ,ie projects that are consented and designed. They shouldnt be new projects but more projects that would have been built in 2-5 years being constructed a few years ahead of schedule.
funnily enough the motorway investment hasn’t been good a creating jobs because half the RONS didnt have any more than a vague route, if that.
Bringing forward the passing lane and curve easement programmes would have been much easier.
I think the construction industry could run into trouble in 3 – 5 years of all the RONS are in full swing. Will push the price up, especially as only a small handful of companies can handle projects that size, mainly Fletchers and Leightons, who are the Waterview bidders.
Question in parliament today: