The Problem with Clinton and Trump’s Infrastructure Plans
They say rebuilding roads and bridges will create jobs. But the industry already faces a labor shortage.
Ask Congress watchers what major legislation is most likely to pass under the next administration, one answer always comes up: infrastructure investment. It is one of the few issues the two presidential candidates appear to agree on: Both Hillary Clinton and Donald Trump argue that the country’s dilapidated roads, bridges and airports need rebuilding. Both candidates also say those programs will create many new jobs, putting construction workers back to work.
Clinton has proposed a five-year, $275 billion plan, while last week, Trump suggested he would double her proposal. Clinton’s website touts a White House report that every $1 billion in infrastructure spending creates 13,000 jobs.
Only one problem: That report is from 2011 when the construction industry was in the midst of one of its worst economic years in its history. Five years later, things look a lot different. Unemployment is low and wages have even started rising. Instead of creating thousands of jobs, experts now warn that a new infrastructure investment could face the exact opposite challenge: a labor shortage.
“Clearly, there aren’t as many players on the bench as there were,” said Ken Simonson, the chief economist for the Associated General Contractors of America. “To the extent that more were needed, the industry would be turning to people with less experience or perhaps having to raise compensation.”
While the stimulus bill included money for new infrastructure spending, President Barack Obama also lobbied Congress to pass an additional stimulus during the fall of 2011—the American Jobs Act—that included more than $50 billion in additional infrastructure investment. It was the perfect opportunity, Obama said, to rebuild our aging infrastructure and put Americans back to work. At the time, he was right: In June, 2011, the unemployment rate in the construction industry was 15.6 percent, down from 20.1 percent a year earlier but still nearly triple its pre-recession rate. More than a million construction workers were looking for jobs.
The plan, though, was blocked by a Republican Congress. In the years since, America’s critical infrastructure has continued to deteriorate, making the need for a big investment even more urgent.
But during that same period, the construction industry has slowly recovered as the housing sector has picked up, undermining the case for infrastructure investment as fiscal stimulus. Unemployment in the construction industry in June was down to 4.6 percent, the lowest it’s been since 2000. Compensation has started rising as well, hitting 2.5 percent in the second quarter of this year—not a rapid improvement but its highest level since 2008. Job openings in the construction industry are also nearing their pre-recession peak. Headlines now repeatedly warn of a shortage in construction workers.
Proponents of a big infrastructure plan brush off these numbers. The real value in infrastructure investment is not the short-term jobs, they say, but the long-term economic benefits from reduced commute times, safe drinking water and improved productivity. Plus, if the government does face a labor shortage, wages will rise and workers in other industries will switch to construction.
“If Trump or Hillary were able to persuade Congress to pass some kind of fairly significant infrastructure, there would be workers who could come from around the country,” said Ray LaHood, the former transportation secretary and co-chair of Build America’s Future.
Since many Americans have faced years of stagnant incomes, higher wages would not exactly be a bad thing. But higher wages also means higher costs for the government while also potentially crowding out other construction projects. Those are real costs that didn’t exist in 2011. Most important, with the labor market for construction workers tight, a large infrastructure program is unlikely to create many new jobs.
“There’s no question that at a moment with high unemployment, it was criminal for Congress to let the infrastructure surge just fade out after 2010,” Lawrence Summers, the former Treasury Secretary who headed Obama’s National Economic Council from 2009 to 2010, said in an interview. Summers has been a leading proponent of more infrastructure spending since leaving the White House.
Still, experts agree that the long-term effects of a major infrastructure bill are positive. Interest rates remain extraordinarily low, although they may rise in the coming months as the Federal Reserve hikes rates. Commodities like concrete, gas and steel are inexpensive, although those prices may tick back up as well. Private investment in construction projects is strong.
The biggest concern with a large infrastructure program may be that projects are delayed due to a lack of workers. Such a scenario isn’t bound to happen but if the construction industry continues to strengthen, as experts expect, it could occur.
“We’ve heard reports that a lot more is being paid in terms of completion bonuses and also overtime pay,” said Simonson. “There are limits on how many hours [people can work]. At some point we do risk having project delays.”
If such a shortage does occur, Congress could fill the gap by increasing immigration for those willing to work in construction or put more money into workforce development and job training programs.
“Construction workers have dropped out. You don’t have necessarily have the same number,” said Michael Likosky, the head of infrastructure practice at 32Advisors. “If there is going to be substantial infrastructure investment, there has to be job training and moving more people into the construction sector.”
Of course, any large infrastructure program will take a long while to get off the ground. Clinton’s plan calls for around $50 billion per year, along with increased investment through other means such as an infrastructure banks. That’s a substantial amount of money, but there are more than a trillion dollars’ worth of construction projects underway right now. A new program would certainly put more strain on the system but not necessarily break it.
There is one scenario where a big infrastructure program could still be a major job creator: If another recession hits. The economy grew at just a 1.2 percent annualized rate in the second quarter. And while job growth has been strong, including the July jobs report released Friday, the historically long length of the recovery makes many economists nervous that a recession could hit during the next president’s first term. If that occurs, a large infrastructure program could be ramping up just as the construction industry hits a downturn and more workers find themselves jobless.
In a sense, then, passing a large infrastructure bill in the next year or two could act as insurance against an economic downturn. Call it a preemptive stimulus.