Smart spending to maximize job creation in US infrastructure

22 June 2017 Authored by Consulting.us

An optimal mix of targeted investment is a better fix for the future of US infrastructure, a new report claims. An intelligent sector-by-sector approach could double job creation from spending $1 trillion from an expected 1.6 million to upwards of 3 million new jobs.

A Trump administration proposal to invest $1 trillion into US infrastructure projects could generate 1.6 million jobs, claims a report from The Boston Consulting Group (BCG). The authors suggest, however, that a smarter job creation strategy would specifically target an infrastructure-related jobs increase of 25% in the next five years. This would translate to four million new jobs by 2021.

The President successfully campaigned on his pledge to invest considerably in infrastructure projects nationwide. The resultant job creation was cited as the key benefit for the American people, alongside sleeker, safer and better connected highways, hospitals and energy pipelines.

Trump’s largest obstacle is the same faced by generations of American leaders, convincing private investors that they will see financial returns sooner rather than later by helping realize such grand public projects.

To develop a fuller understanding of the opportunities offered by ambitious infrastructure investment, BCG commissioned a major new report, titled ‘A Jobs-Centric Approach to Infrastructure Investment’. Analysts evaluated current conditions and the expected short and medium-term impact of a $1 trillion investment package, particularly on the employment market.

Job creation, quality and longevity vary greatly by sector

BCG analysis found that, as a percentage of GDP, investment in infrastructure is currently less than it was in the 1960s - at 2.4% compared to 3%. The report estimates that $1.4 trillion would be needed to plug the funding gap and bring infrastructure spending back towards peak historical levels. Including operational and maintenance costs almost doubles this figure.  

Jobs-centric approach

Presently the infrastructure sector accounts for roughly 15.5 million jobs, employing 12% of the working population. Infrastructure jobs offer wages that are 28% higher than the national average but this statistic masks significant differences within the sector itself.

The jobs-centric approach used by BCG delved deeper into the sector, evaluating different jobs categories on their overall quality, pay and sustainability.

Workers engaged in building and maintaining rail, hospital and seaport infrastructure fared the best, ranking higher than those in highways, bridges, and waste water in terms of job quality. Hospital, seaports and airports ranked high for sustainability, above rail and other mass transit projects - given a medium rating.

Hospitals and seaports also performed strongly in the sustainability stakes. BCG reporters noted that they demand the creation of high-level and handsomely paid permanent positions to ensure long-term success. By contrast job creation in the building of highways, rural broadband and airports tended to peak between 40 and 60 months after the project’s beginning.

Short-and long term job creation by segment

Rather than simply throwing money at the problem, the study suggests that targeted spending of the $1 trillion based on its findings would generate the most jobs. BCG recommends creating a balanced portfolio whereby planners would invest in critical yet underfunded infrastructure like inland waterways, which produce little in the way of direct jobs, but save the larger investments for sectors with high job creation potential, such as airports and hospitals.

An optimal mix of targeted investment spending could create around 3 million new jobs, rising to 4 million once indirect employment is included. This amounts to at least double the 1.6 million jobs BCG predicts would be created on the back an improperly targeted $1 trillion investment. Targeted investment would focus on identifying the number of jobs each sector could produce per $1 billion.

Investing $1 trillion delivers different job outcomes

Senior Partner at BCG, Jeff Hill, said: “Maximizing job creation, with a heavy emphasis on long-term jobs generating tax revenues that will help offset the up-front costs to taxpayers, should be a key objective of an infrastructure investment program.”

Hill, who leads BCG’s infrastructure topic in North America continued, “Strategic project selection is the only way to ensure the creation of millions of infrastructure jobs that offer high-quality, long-term employment across the US.”

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