The IIja will fail if we don’t address worker and supply shortages

The IIja will fail if we don’t address worker and supply shortages

The Infrastructure Investment and Jobs Act (IIJA) has made money for broadband and other infrastructure much less scarce than it normally is. Unfortunately, the real resources—labor and equipment—appear to be far scarcer than they normally are. Even with the additional money, the IIJA will not succeed if these constraints on real resources are not addressed.

The only real-time solution is to waive the “buy American” rules on equipment and encourage more immigration to help ease the labor shortage.

Additional government spending makes a difference if it generates something new rather than diverting, supplanting, or otherwise crowding out other potential projects as workers, supplies, and equipment shift to the government’s program.

Usually, a well-designed program could, in principle, avoid this problem. In normal times, enough people are looking for work and supply chains are flexible enough that markets can often accommodate new government initiatives without sacrificing existing or planned projects.

That seems unlikely to be true today. With unemployment falling to 3.6% in March, the number of job openings close to its highest level in recorded history, and wages increasing by more than 5% annually, labor markets are extremely tight. In this environment, the key question is where the additional workers required to build out new broadband will come from.

Meanwhile, supply chains are strained, driving up prices of other inputs. A massive increase in broadband investment means we’ll need not just more workers, but also more fiber, trenchers, and other equipment, and it is not clear where those will come from, either.

The short answer is that neither workers nor extra capital inputs are immediately available, and nothing suggests they will be available soon.

This problem becomes even worse when we consider that another trillion dollars from the IIJA will also be competing for many of the same resources for other projects. If nothing changes, the result will be higher wages for workers and prices for relevant inputs. Workers and suppliers will cheer, but that means the subsidies will not generate nearly as much new broadband as we anticipate.

What’s the solution?

We could just hope that people who have left the labor force will choose to re-enter it. Labor force participation, after all, had fallen to its lowest level since the early 1980s even before the pandemic. Higher wages may encourage some people to come back. We can also hope that supply chains will sort themselves out, which they will, eventually, but perhaps not in time to save the IIJA.

Hope isn’t a strategy, though. Perhaps the only action immediately available to us is to look beyond our borders.

NTIA should waive the “buy American” provision so that those building new broadband facilities have a larger source of supplies. Supply chains are stressed around the globe, but it is still better to be able to buy inputs from the much larger global market (of unsanctioned countries) than to be restricted to only the domestic market.

Similarly, we should welcome with open arms people of all skill levels from other countries who would happily take the un-, semi-, and highly skilled jobs we desperately need to fill to make the IIJA work.

The IIJA represents a once-in-a-lifetime opportunity to improve all kinds of infrastructure, including broadband. But if we do not confront the real resource problem head-on with big solutions, including potentially unpopular actions like radically increasing high- and low-skilled immigration, IIJA may ultimately generate more inflation than broadband.

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broadband, IIJA, subsidies

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