Introduction to JOBMOD

A Federal-aid Construction Spending

Income and Employment Estimation Model

The FHWA is frequently asked to estimate employment effects of Federal-aid program expenditures.  Such requests often occur during periods of legislative activity and periods of economic recession.

Interest in employment impacts of construction spending during periods of economic distress reflect the widespread belief that highway and other public works investment can be an effective economic stimulus mechanism.  Highway construction spending directly affects industries hit hardest by recession, notably heavy construction, building materials, and durable goods manufacturing.  It is also frequently noted that Federal initiatives may counter the pro-cyclical budgetary tendencies of other levels of government.  Historically, supplementary Federal highway spending programs were enacted by the Congress in response to economic recessions in 1960-1961, 1969-1970, 1973-1975, and 1981-1982.   

Evaluations of these programs performed in the 1970s and 1980s provided the basis for employment estimates supporting passage of ISTEA and contributed to the later development of a direct construction employment model called Highway1, which was used to address TEA-21 legislative concerns.  More recently, a new and improved employment estimation model called JOBMOD (ver.1.1) was developed for the FHWA at the Boston University Center for Transportation Studies.  The JOBMOD model is available in electronic form to assist transportation professionals and policy makers concerned with the economic effects of Federal-aid construction expenditures.     

JOBMOD is an economic input-output model based on the U.S. Commerce

Department’s Benchmark Input-Output Accounts of the United States modified to specifically reflect labor and materials usage on federal-aid highway construction projects.  It estimates, for example, that an across the board increase in Federal-aid highway construction spending of $1 billion combined with a state matching fund ratio of 20% (yielding total expenditures of $1.25 billion), could be expected to generate:

• A first-round of employment benefits in the highway construction industry and materials supplying industries totalling 19,585 person-years.  These jobs generate more than $570 million in worker incomes.  JOBMOD estimates 12,453 jobs occur in the highway construction sector and 7,132 jobs occur in equipment and materials supplying industries. In addition to the substantial numbers of Construction jobs, first-round employment impacts are particularly large in Transportation and Warehousing, Business and Professional Services, Stone and Clay Products, Petroleum Refining, Wholesale Trade, Fabricated Structural Metal Products, and Non-metallic Minerals Mining.
• A second-round of employment and income benefits can be expected to occur in the production sector because of the additional demand for inputs needed to expand output in industries that supply highway construction materials.  An additional 6,939 person-years of indirect employment generates incomes totalling $215 million. Indirect employment is distributed across a much wider array of industry sectors than first-round effects. In addition to employment gains in Business Services, Transportation and Warehousing, and Wholesale Trade, relatively large numbers of jobs also occur in Primary Iron and Steel Manufacturing, Finance Insurance and Real Estate, Automotive Repair Services, Machinery and Equipment, Crude Petroleum and Natural Gas, Chemicals, and Rubber Products.
• Overall, the dollar value of first and second-round goods and services produced by the additional highway construction spending is $2.93 billion.  This implies a combined direct and indirect spending multiplier of 2.34. 
• When direct and indirect employment incomes are spent, a third-round of employment and income benefits ripple through the economy.  This is frequently termed “induced” employment and reflects producer’s response to an increase in consumer demand for all types of goods and services.  The total number of person-years of employment generated by this additional spending is 21,052.  Third round employment income is estimated at $528 million. The largest employment gains occur in the service sector, including Wholesale and Retail Trade, Business Services, Health Services, Restaurants and Amusements, Educational and Social Services, and Finance Insurance and Real Estate, and Communications.  However, large induced employment effects are also observed in Textiles and Apparel, Construction, Agriculture Forestry and Fisheries, Food and Kindred Products, Printing and Publishing, Electric Equipment and Electronic Components, Motor Vehicles and Parts, Paper and Allied Products, and Rubber Products.
• The dollar value of goods and services produced across all sectors of the economy as a result of the $1.25 billion increase in total highway construction expenditure is $6.097 billion, implying an overall spending multiplier of about 4.87.  Employment income from first, second, and third-round effects total $1.313 billion and the number of person-years of employment generated is 47,576.  

Of course this is only one example of JOBMOD income and employment estimation results.  The magnitude of income and employment impacts can be expected to change with the level of Federal-aid highway construction spending and the amount of State and local matching funds.  The incidence of benefits will also vary with Federal-aid program composition since different types of highway capital improvements have different labor and materials intensities. JOBMOD is a national level model that provides industry level employment estimates.  It clearly demonstrates important relationships between highway construction spending, employment and business activity. 
 

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