The Limits of Infrastructure Stimulus

Abstract

There is renewed interest in a significant economic stimulus package to build and improve public works infrastructure. The experience of the 2009 American Recovery and Reinvestment Act (ARRA) suggests that marrying the goals of infrastructure provision and putting unemployed individuals back to work is likely to result in a double disappointment: while some unemployed workers will be hired, many workers—especially high-skilled ones—will be shifting from another job rather than be hired directly from the unemployment lines. Infrastructure spending should be evaluated mostly on the merits and value of the projects it funds and should not be seen as a reliable way to quickly increase aggregate demand or to put the newly unemployed back to work. This brief highlights five findings from two empirical studies we released in 2011 on the microeconomic effects of the ARRA that should illuminate the current public debate on the response to the COVID-19 pandemic.