Lost Jobs

Has the spending on these wars created jobs?  Yes.  Wars in general stimulate demand for various outputs such as aircraft, ammunition, and uniforms.  Approximately 8.3 jobs are created by every $1 million in military spending.  Domestic industries that produce these goods may thrive during wartime, employing people who might otherwise be unemployed.  Military spending by the federal government is therefore often considered not only a source of national security but also, a vital support to economic recovery and employment. 

16 Has this military spending created more jobs than other kinds of spending?  Usually not. In fact, public funds would have created more jobs in the past decade if they had been invested in such industries or sectors as home weatherization, construction, healthcare, or education.

A million dollars of spending would create 15.5 jobs in public education, 14.3 jobs in healthcare, 12 jobs in home weatherization, or about the same number of jobs in various renewable energy technologies.   A million dollars spent on construction (residential and non-residential structures) creates 11.1 direct and indirect jobs.

Investments in renewable energy such as solar, wind, or biomass, would create just as many jobs as military spending.  Efficiency programs such as weatherization of homes and public buildings would create about 1.5 times as many jobs, and federal support for healthcare and education would create twice as many as the same level of military spending.                                                                                

Why are more jobs created in one industry than another?  The three reasons why the same amount of spending generates differences in employment creation are: (1) labor intensity; (2) domestic content; and (3) wages.  

Industries such as education and building weatherization are labor-intensive.  For a given level of spending, more of those dollars go toward hiring workers and less on equipment and materials.  Secondly, the domestic content of industries such as education, healthcare, and construction is much higher than the domestic content of military spending – a greater percentage of the spending in these industries stays within the U.S., where it is used to hire domestic employees and buy domestic materials.  Military spending presents a much bigger leakage to the economy, as military personnel spend more of their earnings abroad and more equipment and materials are procured from outside the U.S.  Finally, all else being equal, if worker compensation is lower in industry A than industry B, the same pot of money can hire more workers in industry A than in B.  Since wages, and particularly benefits, are lower in education, healthcare, and energy efficiency than they are for the military, military contractors in particular, the employment effects are greater in these industries.

The (at least) $1.3 trillion of Department of Defense war spending in the past decade averages out to $130 billion per year.  While these funds did indeed create jobs in the military and in related sectors, the opportunity cost of this spending is the additional jobs that would have been created if we had spent these funds on other domestic programs. 

$130 billion per year could have created a net increase of jobs in other sectors:  for example, more than 300,000 jobs in construction, or 900,000 jobs in education or about 780,000 jobs in healthcare, assuming here that the education funds are distributed to state and local governments to fund public education in primary, secondary, and higher education.

Alternatively, the federal government could have increased its support for energy efficiency programs such as weatherization of homes and public buildings, or increasing the infrastructure and operations for mass transit.  $130 billion per year in these efficiency programs would have created a net increase of about 500,000 jobs each year.  Spending in renewable energy programs would have created approximately the same number of jobs as the military, but would have contributed to combating climate change and building a more sustainable energy infrastructure.


PHOTO by flickr Paul Keheler via Wikimedia Commons