It is estimated that every $100 million spent on construction generates 3,000 new jobs.
Gov. Bob McDonnell has been pitching his $4 billion transportation plan as a vehicle that will deliver thousands of new jobs to Virgina. "It is estimated that every $100 million spent on construction generates 3,000 new jobs," McDonnell, a Republican, said in his State of the Commonwealth address on Jan. 12. We kicked the tires on the governor’s claim. A spokesman for the governor steered us to a 2007 report by the Federal Highway Administration that examined the effect of road construction on jobs. The paper updated similar studies from 1997 and 2005. The FHWA says highway spending can create three types of jobs. There are construction jobs where people work directly on a road project or work to produce materials like the concrete, signs and guardrails. You also have supporting jobs, such as at a firm that makes sheet steel and sells it to the company that makes guardrails. And finally there are "induced" positions, which the FHWA says "includes all of the jobs supported by consumer expenditures resulting from wages" in the other two categories. For example, when the road builder and the guardrail maker go to lunch, the money they spend helps keep the waiter and chef employed, meaning their jobs are partially supported by wages earned from road construction. The report says $100 million in spending supports 1,030 construction jobs, 467.5 support industry jobs and 1,509.4 induced jobs. Add those figures up and you get 3,006.9 jobs. But, as TBD.com reporter Kevin Robillard pointed out when he examined the claim, the FHWA report has caveats. Some highway projects require spending to purchase right-of-way for new lanes or ramps, meaning there is less money available to spend on those construction workers. The FHWA says the average Federal-aid highway project has historically used 7 percent of its funds for land purchases. Those purchases would reduce the jobs created to 2,780 for each $100 million spent. And while the road crews would be working in Virginia, if any supplies came from outside of Virginia, then the state’s spending would be supporting jobs elsewhere. There is also no guarantee that the support industries or induced jobs will hire in the expected proportion. We called Bill Hecox, spokesman for the FHWA, to talk about the report. He warned us the employment figures "can change daily, or at least seasonally, because they vary with labor and material prices." Hecox said the FHWA has been down this road recently as reporters and politicians asked the agency to determine how many jobs were created by federal stimulus spending. The answers, he said, were really hard to come by because the seasonal nature of construction jobs and different conditions in each state make each road project unique. The spokesman also noted that spending sometimes has a role in preserving existing jobs rather than creating new ones. But he again warned of the difficulty of precisely calculating the value of the trickle-down spending. "It gets indirect, and how many ripples do you count?" he asked. "Do you count the guy selling bread to the restaurant? The tire company selling tires for the bread truck?" And if the current economic environment has taught us anything, it’s that improved spending and economic performance do not necessarily equal new jobs. American companies are increasingly adept at making do with a smaller number of more efficient workers. At some point might the company making guardrails decide it would rather invest in more efficient machinery and pay some overtime rather than hiring a new shift of workers? The report says that $100 million in spending "supports" 3,000 jobs. That is different from "generated," which was the governor’s term. The FHWA says the jobs figure "includes ‘new jobs’ to the extent unemployed labor is hired; ‘better jobs’ as currently employed workers move into jobs with higher compensation and/or full-time positions; and ‘sustained jobs’ as current employees are retained with the expenditure." These jobs are temporary. Spending $100 million creates 3,000 "person-years," the FHWA says, meaning it can support 3,000 jobs for one year or 1,500 for two years (or any other combination). But unless more money comes along, the positions don’t last. Let's review. McDonnell drew the data from a reputable government source. He used the most recent version of the study in making his claim. But there are several flaws in his conclusion. He wrongly says $100 million in construction "generates 3,000 new jobs." The FHWA says each $100 million block of spending "supported" 3,000 jobs, not created or generated. Much of that $100 million would preserve existing jobs, not create new ones, And of those "supported" jobs, just one-third are directly tied to the construction project. More than half are supposed to stem from trickle-down spending as the wages received by construction or other road-related workers are spent. If the wages get diverted to paying down credit card debt or saving for retirement, that spending is diminished. McDonnell had some rich data in his tank and overshot his exit. We rate his statement Barely True. Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.
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