Although the National Bureau of Economic Research tells us that the recession ended in July 2009, the U.S. economy nonetheless remains in a period of sluggish and uncertain growth. Consumer confidence remains low, and, with a pending “fiscal cliff,” the “Recession Probability Index” jumped from about 2 to nearly 20 in August. Unemployment remains exceptionally high. As we discussed in our paper Can Government Spending Get America Working Again? An Empirical Investigation, the government’s effort to jump start the economy with spending has failed (and will continue to do so), and recovery is likely to depend on the expansion of private sector investment. Yet, private investment has faltered in the last three quarters.
Despite the presently lethargic economy and the somewhat dire predictions for the near future, there is at least one positive development. Last week, AT&T announced plans to double-down on its network infrastructure by investing an additional $14 billion over the next three years in both its wireless ($8 billion) and wireline plant ($6 billion). This is the exact type of private sector investment that will support the renewed growth of the U.S. economy and job creation. The relevant question, therefore, is by how much?
In our Policy Bulletin No. 25, Jobs, Jobs, Jobs: Communications Policy and Employment Effects in the Information Sector, we used econometric techniques to estimate the effect on information-sector jobs from investment spending in the sector. Based on historical data, we found that each million in private investment in the information sector produced about 10 jobs (annually). Accordingly, it is possible to estimate that AT&T’s investment of $14 billion will create about 140,000 jobs (about 47,000 jobs each year). As we detailed in the paper, these aren’t just your run-of-the-mill jobs either, with the average income in the sector being about 45% higher than the average private sector job. These jobs are about twice as likely to be union jobs, which will make some segments of the population happy (others not so much).
In our Bulletin, we also provided a rough estimate of the total employment effects of information-sector spending. From that estimate, it is possible that other sectors could see employment rise by nearly 200,000 jobs based on AT&T’s increased investment, for a total employment bump of 336,000 jobs (or about 112,000 annually). This increase is not small potatoes—this bump in employment represents about a 6% increase in the annual rate of non-farm employment growth over the past few years. Other studies have found a positive effect on employment from improvements in communications technology. As for the economy, many argue that investment in broadband has a larger effect on economic growth than investment in other sectors. Let’s hope that’s the case.
With many American companies sitting on mountains of cash, reluctant to invest, it’s good to see at least one company step out of the pack and invest in this country’s economic future.