The Biden Adminstration’s infrastructure proposal, called the American Jobs Plan as opposed to American Infrastructure Plan, has been marketed as creating 19 million jobs, which is amazing considering only about 10 million are now unemployed. And yes, I know that’s undercounting the unemployed and that the 19 million new jobs is over ten years, but even so, it seems ambitious and almost certainly inflationary. Of course, FactCheck.org notes that most of those are jobs that would be created without the infrastructure plan, and the actual increase would be 2.7 million.
Such innumeracy is typical in policy debates, and especially when it comes to job creation resulting from renewable energy programs. (In the 1990s, the mantra was ‘productivity,’ but that’s not as fashionable now, even though better infrastructure would lower costs and improve productivity.) And without a doubt, a bill to expand spending on the nation’s infrastructure is long overdue but the obfuscation about job creation should be avoided.
Since this proposal requires extensive expenditures and subsidies it seems counter-intuitive that argue that it might not create jobs. The answer usually involves the difference between microeconomics and macroeconomics or, more simply, gross versus net jobs. Spending money to hire workers creates jobs, but taking money out of the broader economy to pay for them destroys jobs.
Spending taxpayer money to support, for example, the building of solar power farms will create the jobs involved in the manufacture and installation of the solar panels, which is what advocates of such policies typically focus on. These jobs are easy to measure after the fact, and can be estimated beforehand with a degree of confidence: X dollars spent on labor, divided by Y cost of labor, equals N jobs.. But the impact on the broader economy of taking money from taxpayers and customers to pay for those jobs is less visible and the impact often ignored.
For all the talk of how cheap renewable energy is (a subject for another day), the fact remains that government support has been vital in the growth of solar and wind in most instances, and investment in those energies has tended to fall sharply when support was reduced or ended. The implication is that the overall economy suffers from spending on renewables, as most projects create energy at above-market prices, something all too often glossed over or misrepresented. Simply put, it means less money in the economy.
And the net change can muddy the fact that there are losses as well as gains, plus costs related to the transition. The simplistic view is that you can wipe out coal mining jobs but replace them with renewable energy (construction) jobs and we’ll all be better off. But that assumes a seamless, frictionless transition from one industry and job to another. Life is not a video game, where a lost character just reappears at another site. There’s a cost to move West Virginian miners to Montana to build wind turbines.
In 2018, FTI consulting published a report trying to parse out the effects of such a program, and the results are illuminating. (“The Economic, Fiscal, and Emissions Impact of a Revenue-Neutral Carbon Tax.”) They concluded that the first four years would see an employment loss of about 0.5%, several years of minimal impact, and three years of nearly 1% extra employment. This would seem a quite reasonable result, reflecting the costs of transition from such a program, and the Biden infrastructure proposal would probably have a similar impact.
Needless to say, there are many other complicating factors involved that space and time do not permit me to address here, but the general principles are sound even if the details are somewhat uncertain. More important, the fact that some net job losses might occur in the early years of the program, or that there might be an initial jobs boost from the spending followed later by a slowdown from fiscal restraint (a near-mythical beast), should not prevent spending on infrastructure from being approved. Because if you think the nation doesn’t need to repair it’s infrastructure, drive five minutes in any direction and I’ll wager your opinion will change.