Putting Public Investment to Work

IMF Blog, August 11, 2021

Source details

Drawing on a 19-year dataset of over 5,600 construction companies from 27 advanced economies and 14 emerging market economies.
Measured the direct employment effect of $1 million of infrastructure spending by country income group and sector—electricity, roads, schools, hospitals, and water and sanitation.
Because there is no data available for low-income developing countries, employment impacts for that group are estimated by extrapolating from advanced economies and emerging market economies.
Job creation estimates depend on labor mobility (how easy it is to move across companies within sectors) and labor intensity (defined as the labor effects down the supply chain in a sector).

Example extremes by mobility and intensity:
- In an emerging market economy with high labor mobility and high labor intensity, around 35 jobs are created in water and sanitation per $1 million of additional investment.
- In a country with low labor mobility and low labor intensity, that number falls to around 8 jobs per $1 million in water and sanitation.
Advanced economies (assuming intermediate labor mobility and labor intensity levels):
- Average of 3 jobs in schools and hospitals per $1 million.
- Over 6 jobs in the energy sector per $1 million.
Low-income developing countries (estimates via extrapolation):
- Range from 16 jobs in roads to 30 jobs in water and sanitation per $1 million.
Sectoral observation:
- Each unit of public infrastructure investment creates more direct jobs in electricity in high-income countries and more jobs in water and sanitation in low-income countries.
Aggregate impact:
- One percent of global GDP in public investment spending can create more than seven million jobs worldwide through direct employment effects alone.

Green investment (per $1 million invested):
- Around 5–10 jobs could be created in green electricity.
- Around 2–12 jobs in efficient new buildings like schools and hospitals.
- Around 5–14 jobs in green water and sanitation through efficient agricultural pumps and recycling.
Research and development:
- Around 4 jobs are created in R&D per $1 million invested.
- These R&D jobs are mostly, if not exclusively, for high-skilled workers.
- Note: R&D is a much smaller component of public investment and is mostly to government institutions and higher education.

Public spending on infrastructure can make a meaningful contribution to job creation through direct employment effects along supply chains.
The composition of infrastructure spending (sector and green versus conventional) and the country context (income level, labor mobility, labor intensity) substantially affect the number of jobs created per dollar invested.

Source: Putting Public Investment to Work — Marıano Moszoro, August 11, 2021.