Putting America to work, where? Evidence on the effectiveness of infrastructure construction as a locally targeted employment policy

Is infrastructure construction an effective way to boost employment in distressed local labor markets? Using new geographically detailed data on highway construction that was funded bythe American Recovery and Reinvestment Act, I study how road construction projects affect local employment growth. The method for allocating funds across space facilitates a plausible selection-on-observables strategy. I find that highway funding impacted construction employment at the county level: A dollar of additional Recovery Act spending on local construction increased local construction payrolls by thirty cents during the five years after the Act’s passage. The magnitude of this effect matches the national labor share of construction revenues, suggesting that targeted spending did not crowd out other local construction. These effects are most pronounced in counties with smaller populations and smaller shares of residents that commute to outside counties for work. However, when testing for general equilibrium effects on local employment and payroll aggregates, I find effects close to zero, with very wide confidence intervals across all specifications. Although the Recovery Act was an intervention significant enough to have a sizable impact on the construction sector in counties with low mobility, these findings suggest that the local variation in highway spending was too small relative to baseline regional volatility to detect a “local multiplier” effect impacting jobs outside of construction.