How many jobs? Roads, bridges and the stimulus

Hattip to Strong Towns Blog, a report from MPR on the number (or lack therof) of jobs created due to stimulus in Minnesota: How many jobs? Roads, bridges and the stimulus

“I checked in with the Minnesota Department of Transportation on Friday after seeing a jobs number on its site that just couldn’t be right — 483 full time equivalent jobs.
It wasn’t. A MnDOT spokesman said that represented only jobs from the last quarter of 2009 and that the total FTE was about 1,500. That made sense and I was going to post the 1,500 number on Friday but then the spokesman called back and said they were still working on a calculation and I shouldn’t use the 1,500.”

I have no clue what the real number is, nor does anyone else, but I do suspect the methodology is nonsense. The prediction for 5000 road construction jobs in Minnesota did not come to pass. As I said last year, highways are a lot more capital intensive than they were in the 1930s, and macro-economists who think of highways as job-creators are simply remembering black and white films of the Civilian Conservation Corps with gangs of workers and pickaxes building roads through national parks. This of course doesn’t mean roads should or should not be built, but the stimulus bill was not terribly effective in this arena for job creation.

Transportation should be justifiable on its own merits (private + social benefits > private + social costs), not because it creates jobs (which in any case is a cost not a benefit — I am not a macroeconomist).

A recession may however make the case stronger. If a recession causes employment to go down (and thus wages to drop, and other demand to drop, so other capital costs to drop as well), the total costs of a project will drop, and the benefit cost ratio should rise (the benefits may be lower due to lower initial demand, but that is only short-term and thus a small fraction of the benefits, while the cost drop for initial capital costs is a large fraction of the costs). If the benefit-cost ratio goes up, funding is more justifiable.

It is most optimal to run the capital equipment required for road construction at a continuous level of “full” utilization, because this equipment is expensive, you don’t want it lying about unproductive, and you don’t want to buy more for only a short-term spike. Due to specialization, the equipment is not terribly fungible (nor are its operators), you cannot use road construction equipment on non-road projects very easily. Continuous rate of utilization is achieved by a steady rate of expenditure on projects which is not very spiky due to stimulus or other money bombs, or on the other side, drops in revenue due to failure to authorize expenditures, short term drops in user fees etc.