Why better infrastructure is key for strong US economic growth

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Infrastructure helps to solve both long-term and short-term economic problems.  In the short-term, infrastructure investment helps provide jobs for low skilled workers, who are struggling with the long-term impacts of the financial crisis as well as the increasing impact of technology on the job market.

employment power infra

Market Realist – The graph above shows the employment power of infrastructure. As per estimates by PERI, with every $1 billion in infrastructure spending, water management, school buildings, and transportation all generate more than 19,000 jobs each. Energy (XLE) infrastructure investments would lead to 16,700 new jobs.

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Investment in infrastructure leads to more jobs than tax cuts do. According to PERI, for every $1 billion in tax cuts, only 15,000 jobs would be created if the tax break were entirely used for consumer spending (XLY). So investment in infrastructure generates between 10% and 30% more jobs than an investment in tax breaks generates.

Market Realist – The graph above shows that infrastructure jobs pay over 30% more to workers at the lower ends of the income scale than all occupations nationally.

As per research by the Brookings institute, infrastructure jobs tend to pay higher wages to workers at the tenth percentile, 25th percentile, and the median compared with all occupations nationally. This finding is a noteworthy indicator of the significance of infrastructure to workers with wages at the lower ends of the income spectrum.

equitable distribution infra

Market Realist – The above graph shows how wages for infrastructure are more evenly and equitably distributed than for all other occupations. The gap between tenth-percentile and 90th-percentile incomes is much lower for infrastructure occupations than other occupations nationally.

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Infrastructure plays a key role in an economy’s growth. It contributes to the country’s GDP by boosting productivity levels, giving an impetus to the technology sector (XLK), and generating employment. A stronger economy results in higher earnings in equity markets too, so infrastructure is an important driver for U.S. equity markets like the S&P 500 (SPY)(IVV) and the Dow Jones Industrial Averages (DIA).

In the long-term, infrastructure has a wide range of benefits.  A pipe manufacturer will be able to produce and distribute its goods more effectively and cheaply.  A technology company will pay a better price to power its servers.  A school district will be able to use water more efficiently.  A commuter won’t see a day’s pay disappear at the pump.

Business will be able to use the money they save to invest in new equipment and technologies, create jobs, and help control prices.  Governments will be able to make better use of tax dollars (and potentially even cut taxes).  And individuals will be able to put money towards a college fund or simply spend their extra cash.

This may sound a bit blue-sky.  But these are achievable outcomes.  The question is, with stretched budgets and an unproductive atmosphere in Washington, how do we get there?

Market Realist – Read on to the next part of this series to see how the U.S. can achieve better infrastructure.

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