S&P Study Reveals Economic Benefits of Infrastructure Investment

A $1.3 billion investment in infrastructure could add 29,000 jobs to the construction sector, and more to related industries according to estimates from Business Forward member company Standard and Poor’s.

The investment would increase economic output by $2 billion that year and provide long-term benefits after the project has ended with greater productivity.

The author of the report, S&P’s chief economist Dr. Beth Ann Bovino, joined Business Forward for a webinar yesterday on the most recent employment report, where she said infrastructure investment might be one of the most effective ways to help a slowly recovering labor market.

It might not seem surprising that investments would lead to additional hiring. But S&P stresses infrastructure projects will have a greater effect now than in normal economic times:

During recessions or weak recoveries (as is the case today), private construction activity is soft and unemployment in these job markets is high, so a much larger portion of the employment an infrastructure project supports would likely also be jobs created. Therefore, the unemployment rate goes down.

With more idle construction workers, it is more likely that infrastructure projects would create jobs rather than attract workers that would have been employed elsewhere.

Unemployment among construction workers remains high at 9.4 percent (not-seasonally adjusted) in the April jobs report. This is an improvement from the 13.2 percent unemployment rate in the sector a year ago but still well above the average for construction workers prior to the 2008 financial crisis. Research from the Treasury Department and Council of Economic Advisors found that 90 percent of the jobs affected by infrastructure investment are middle class jobs (with wages between the 25th and 75th percentile).

Infrastructure investment can also have large long-term returns by raising productivity, leading to greater economic output. The brief cites a report from the Institute of International Finance and Swiss Re that estimated that an additional 10 percent in spending in infrastructure projects would increase economic growth by 0.9 percent.

At the same time, S&P warns that much of the gains depend on how the infrastructure projects are managed and what the project will accomplish. Increasing existing capacity is important, but much of the existing infrastructure in the U.S. is in need of repair. While these projects might have a lower profile, they should provide a greater return on the investment.