Maximizing Job-Creation Bang-for-Buck by Reducing Import Leakages



Josh Bivens | Economic Policy Institute

Americans across the political spectrum consistently express support for major infrastructure investments. A large, sustained increase in infrastructure investment would benefit the U.S. economy in many ways (see Bivens 2018 for an overview of the benefits), yet no serious increase in infrastructure spending has yet occurred.

This policy memo focuses on one major economic argument in favor of increased infrastructure investment—that it would increase demand for American manufactured goods and, in turn, generate American manufacturing jobs. As this memo shows, more jobs will be created if policymakers take steps to reduce the yawning U.S. trade deficit that allows jobs to “leak” outside the U.S. economy as U.S. spending increases.

Spending in any given economic sector sets off ripple effects, or linkages, across other sectors. For example, an increase in demand for construction-sector output supports construction jobs directly but also supports jobs in industries that supply inputs to the construction sector. Take the case of a large infrastructure project that includes constructing intercity rail transportation. Such a project would create direct jobs in construction (jobs building tunnels and bridges and track beds, and the like). But the project would also create indirect jobs in the industries supplying the wide range of inputs required—such as construction equipment and tools, steel and concrete, and services rendered by environmental and information technology consultants.

The number of direct and indirect jobs supported by an increase in economywide spending depends in part on how much of this spending goes to purchase imports rather than domestically produced goods and services. In the case of infrastructure investments specifically, the number of U.S. manufacturing jobs supported depends on the share of purchased manufacturing inputs that is produced domestically as opposed to being imported from abroad.

The larger the share of imported inputs, the smaller the number of supplier jobs supported in domestic manufacturing. This policy memo provides an illustrative example of how many manufacturing jobs would be supported under the status quo (i.e., if the import share remains high due to the current large trade deficit) and under an alternative scenario in which the share of manufacturing inputs imported from abroad drops by a third due to a sizable decrease in the manufacturing trade deficit.

We find that by cutting the manufacturing trade deficit to a more sustainable level (by roughly two-thirds), tens of thousands of additional U.S. manufacturing jobs would be supported by any ambitious investment in infrastructure. There are many reasons why we should use the levers of policy to put American manufacturing production on a more-level playing field with global competitors. These policy levers—whether they are moves to ensure that the value of the U.S. dollar falls to a more competitive level in global markets, to stringently enforce trade laws, or to enact “Buy America” provisions that mandate some level of domestic content in government procurement—can help maximize the job creation spurred by infrastructure investment in communities across the country.

Maximizing job creation

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