So we stumbled upon an interesting discussion that took place last month on public radio business show Marketplace regarding the cost of job creation. Reuters financial blogger Felix Salmon used EMSI estimates from our fourth green jobs paper to say that it costs $200,000 of infrastructure investment to create one job.
Oregon Representative Peter DeFazio took exception to the estimate and wrote a letter to Kai Ryssdal, host of Marketplace. You can listen to the segment or read the transcript here. (The topic comes up at around 20:45 of the audio stream.)
Here’s the essence of it from the transcript:
Finally, an object lesson in the perils of covering the American economy. A couple of Fridays ago, Felix Salmon, one of the regulars in our Weekly Wrap, said this as a part of a conversation about how the president can create new jobs.
FELIX SALMON: Of course, infrastructure investment is extremely expensive way of creating jobs. It costs a good $200,000 per job.
Couple of days later we got a letter from a listener, someone who’s been on the show a couple of times, actually. Representative Peter DeFazio, Democrat of Oregon.
The congressman took issue with Felix’s $200,000 a job figure. He says the number’s really closer to $92,000 a job. That’s according to the President’s Council of Economic Advisors, Mr. DeFazio told us. Felix got his estimate from a private consulting firm, called Economic Modeling Specialists, Incorporated.
So, what is the object lesson here? That what you believe about business and the economy depends in very great measure on who you talk to and what economists you read. That is why we’ve put links to the studies and economic models both Felix and Congressman DeFazio quoted on our Web site, so you can have a look and maybe decide for yourselves.
The next day, Salmon posted DeFazio’s letter in full on his blog and wrote a scathing response on how the government “fudges” job statistics. Salmon’s lengthy post and the dozens of comments below make for some fascinating reading — he distinguishes between “dollars per job created” and the “job-years” that DeFazio refers to.
Salmon especially nails it in this section:
The fact is that if you move away from vague country-level statistics and start drilling down to the actual number of jobs created by actual infrastructure projects, you never get anywhere near $92,000 per job. For instance, have a look at the job-creation statistics on this page.
A 5-mile stretch of highway, costing $50 million, creates a total of 79 jobs. That’s over $600,000 per job. Even if you divide that by two on the grounds that it’s a two-year project, that’s still $300,000 per job-year. In railways, a $15 million investment creates 12 jobs — that’s $1.25 million per job, and it’s a one-year project.
I’ve seen similar numbers surrounding hospitals, and higher numbers surrounding nuclear power stations — basically, infrastructure investment is an incredibly inefficient way of creating jobs.