PRODUCTIVITY IMPACTS OF HIGHWAY INVESTMENT

Production Cost Savings:

At the national level, industries realize a production cost savings of 24 cents annually for each $1 increase in the value of the non-local road network. This is an average result covering the time period 1950 to 1989. This suggests just over a 4-year payback period for increases in the value of the non-local highway network.

For the entire highway network, including local streets and roads, the annual cost savings is slightly lower -- 18 cents for each additional $1 increase in the value of the highway network. This suggests a little over a 5-year payback period for increases in the value of the highway network.

Assuming average lives for roadway paving, grading, and structures to be 14, 80, and 50, respectively, this result suggests that highway network investments as they increase the value of the highway network more than pay for themselves when measured in terms of industry productivity benefits. (This bullet may be a stretch, since the study analyzed highway "capital stock" not highway investment specifically. Since highway "capital stock" is increased by investment and decreased by depreciation a $1 increase in investment does not translate directly to a $1 increase in capital stock.)

Contribution to Productivity Growth Rates:

The highway network's contribution to yearly productivity growth rates over the 1950 to 1989 period averaged above 25 percent. This means that the highway network has contributed, on average, one-quarter of the yearly productivity growth rate in the United States. This highlights the highway network's importance to maintaining economic growth.

Net Social Rate of Return:

The net social rate of return for non-local roads in the 1980's was 16 percent. This measure of net social rate of return is an estimate of net income to private industries divided by the value of the shared public highway or non-local road network.

The net social rate of return to the entire roadway network was 10 percent over the 1980 to 1989 period.

Net social rate of return differs from the measure of production cost savings explained above in that net social rate of return represents net benefits, i.e. depreciation has been subtracted out, while production cost savings represents gross benefits.

This rate of return on the non-local road network is significantly higher than the 1996 prevailing rate of return on private capital and the long term interest rate which are both 10 percent.

EMPLOYMENT IMPACTS OF HIGHWAY INVESTMENT

Per $1 billion of investment in 1996, the Federal-aid highway program supports approximately 42,100 total full-time equivalent jobs.

Of this total 42,100 jobs per $1 billion investment:

• 7,900 are direct, on-site highway construction jobs. Direct jobs include only those workers employed at the highway construction site itself. These jobs include all on-site laborers, specialists, engineers, and managers involved with specific highway improvement projects.

• 19,700 are indirect, or supply industry jobs. Indirect jobs are workers in industries which supply highway construction manufacturers with materials and off-site construction industry workers such as administrative, clerical and managerial workers. Supplying industry jobs include those supported in stone and clay mining and quarrying, petroleum refining, lumber, steel, concrete, and cement products, and miscellaneous professional services.

• 14,500 are induced, or jobs supported within the general economy. Induced jobs are jobs supported throughout the economy when highway construction industry employees spend their wages. Expenditures by these workers on various goods and services stimulate demand for additional employees in many industries, resulting in jobs being supported throughout the general economy.

The number of indirect jobs supported per $1 billion of highway infrastructure investment is greater than the number of direct jobs supported by that same $1 billion because more of each highway construction dollar goes to purchase materials then goes to labor, and therefore, more jobs are supported in supplying industries than in the highway construction sector.

A new study establishes a strong link between the highway network and national economic performance. Unique in the depth and breadth of its 35-industry data base, this research sheds new light on the commercial benefit of the highway network.

Occupational Breakdown

Highway construction and related activities financed through the Federal-aid program are important sources of employment for persons in many industries and many different occupations throughout the economy.

A geographically and demographically diverse work force representing all skill levels is supported by investment in highway construction activities, and subsequently, in industries which supply materials to the highway construction industry, and in other industries throughout the economy.

Although males comprise the vast majority (about 93 percent) of highway construction labor working on Federal-aid projects, women's participation has increased from 5.5 to 7.0 percent over the period from 1983 to 1993.

Female participation in the industry also spans many occupational categories, from officials (18.9 percent of total) to unskilled laborers (8.5 percent of total).

Minority workers are more highly represented on the Federal-aid highway construction projects (25 percent) than in the overall labor force (14 percent.)

Minorities, like women, hold jobs in many occupational categories, ranging from officials (18.4 percent of total) to unskilled laborers (35.6 percent).

Other Important Points

Job generation estimates from FHWA research represent gross estimates. In other words, the employment that may be supported from alternative uses of the same funds is not quantified.

Past FHWA estimates of the direct, indirect, and induced employment impacts of highway investment have been slightly larger in absolute terms than FHWA's latest estimates. Most of this difference is explained by inflationary impacts.

The FHWA has developed a flexible, user-friendly PC model (HIGHWAY1 Model) which allows for direct employment impact analysis at the regional (as well as national) level. This allows FHWA to obtain more accurate direct (e.g., highway construction industry) employment estimates than cited here (which was based on national data.) The HIGHWAY1 model will be available to FHWA Region and Division offices beginning in April 1996, and soon thereafter to State DOTs. The user is given the option to directly input or select default values (based on the 1993 highway program composition data) for:

• distribution total of spending across FHWA regions,

• composition of spending by improvement type (new construction, 3-R, bridge, etc.) within each region, and,

• regional program expenditures by urban/rural status.

With these abilities, researchers can tailor regional differences in highway infrastructure development into regional employment impacts.