Infrastructure investment could create employment boom in US

01 June 2017 Consultancy.uk

Investment into US infrastructure projects is touted to increase significantly in the years ahead, in part to meet basic standards, a new report claims. The investment of potentially more than a trillion, is capable of creating considerable employment opportunities across the US. Focus on critical projects will generate upwards of 1.6 million new jobs, although it misses out on the job creation potential from various non-critical investments.

The United States' controversial leader Donald Trump has made investment into US infrastructure a key priority over his first term in the White House, following years of neglect have left it in a state of disrepair. Recently this led to Trump's administration courting Saudi Arabia, who amid efforts to diversify the Kingdom's oil-dependent economy are reportedly planning a $40 billion loan to finance the required maintenance and replacement. In spite of this, projects are currently thought unlikely to garner the funds required to meet passing standards, as private investors are unlikely to vie for contracts in the projects that while beneficial to the public and economy broadly, would see little in the way of financial return.

To better understand the infrastructure opportunities, as well as the potential job creation associated with investment, management consulting firm The Boston Consulting Group (BCG) analysed current conditions as well as the effects of investment in a new report, titled ‘A Jobs-Centric Approach to Infrastructure Investment’.

Job creation, quality and longevity vary greatly by sector

The infrastructure ‘baseline’ in BCG's analysis was positioned to represent the current trends of investment within the sector, which, according to the study, is considerably less, as a % of GDP then in the 1960s, at 2.4% and 3% respectively. The paper also suggests that there is a $1.4 trillion funding gap to 2025, which, when adding in operations and maintenance, almost doubles in value. In terms of employment the sector remains one of the largest in the US, with approximately 15.5 million jobs representing around 12% of the working population.

According to a related ASCE report into the current status of much of the infrastructure in the US – most of the infrastructure scores a D on average, with no segment of infrastructure above a C+ on average. Highlighting considerable need for improvement.

The investment required in various infrastructure projects is considerable. However, the different levels of investment create different levels of job quality and job sustainability. In terms of job quality, here measured in pay, hospitals, rail, and seaports, among others, rank highest. Highways, bridges and waste water rank the lowest. In terms of job sustainability, Seaports, hospitals and airports rank very high, while rail and mass transit are rated medium.

Short- and long-term job creation by segment

In terms of long-term job creation, seaports and hospitals are found to be particularly effective – hospitals tend to require considerable high-level permanent jobs to function in the long-term, in a similar vain to seaports. Inland waterways too tend to create relatively long-term job value, before tapering off at around 140 months.

In terms of short-term job creation, highways, T&D, airports and rural broadband are key, and are predicted to create a considerable spike up to between 40 – 60 months following the commencement of a project.

Investing $1 trillion delivers different job outcomes

According to the study, there are different ways in which the $1 trillion in needed investment can be spent, with consequently different outcomes in terms of job creation. As noted previously, different sectors are in more or less dire need for investment. Investment in sectors with high levels of criticality, with D+ or below grades, could see approximately 1.6 million jobs created – with the largest investments in inland waterways.

Investment in primarily job-creating sectors, but still covering critical gaps where needed in infrastructure, would see around 3 million new jobs created. Focus in placed on investing in areas with high potential for jobs per $1 billion invested, including hospitals, seaports and airports.

According to the firm’s Jeff Hill, Senior Partner, “Maximising 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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