President Joe Biden’s attempt to expand the definition of infrastructure has sent economists to the drawing boards to measure the impact of his spending plans.
Infrastructure has traditionally been thought of as physical things—roads, train tracks or airports—and federal investment in these in the past has transformed the U.S. economy, helping drive growth and productivity.
Yet the pandemic has had a disproportionate effect on mothers and minority workers, prompting some policy makers to call for building a more robust “care economy” through spending on what’s now being called “soft infrastructure.”
Women—who often took on child-care responsibilities when schools or day-care centers closed during the pandemic—have left jobs in droves in the past year. With April’s employment report marking another month of women dropping out of the labor force, such spending is again coming into focus.
Less Potential
About 40% of the $2.25 trillion American Jobs Plan that Biden introduced in March consists of infrastructure pertaining to people. And the $1.8 trillion American Families Plan, announced last month, consists almost entirely of human investments. Both face hurdles to getting passed by Congress.
While these could pull millions of Americans out of poverty and provide parents with new work opportunities, measuring those social benefits in traditional aggregate data like gross domestic product may be more challenging to economists than looking at direct spending on things like roads and bridges. Some question whether GDP is useful for measuring the impact at all.
The key question around the “soft infrastructure” proposals is “how does that expand the work force and how does that bring, in particular, more women into the work force,” said Brett Ryan, senior U.S. economist at Deutsche Bank AG. “That has the potential to pay huge dividends.”
Ryan’s preliminary calculation of the Biden agenda’s possible impact—assuming it passes in its proposed form—is for adding 0.5 to 0.6 percentage point to growth in the first 12 months, figuring 10% of the spending would occur in the first year.
Longer Term
But estimating the longer-term effects is a different story. Expanding home health care for the elderly and child care for the youngest would help more women enter the workforce, but the GDP impact can be hard to measure, said Bloomberg economist Yelena Shulyatyeva.
“I would not dare to put a number on it,” Shulyatyeva said. “GDP impact is one thing, but it’s also the social benefits. From that point it’s great.”
Not all analysts see Biden’s plan boosting growth. The policies could actually slow GDP because the effects of more government debt will outweigh productivity gains, according to an analysis by University of Pennsylvania researchers.