“There’s an analysis that says investment in the Chips and Science Act will create 1 million — more than 1 million construction jobs alone over the next six years building semiconductor factories in America.”
— Biden, in a tweet, Aug. 11
We’ve learned from experience that when a president utters a big job-creation number, it’s ripe for fact-checking. So we were curious to learn how the president’s job prediction for the Chips and Science Act — which will provide nearly $53 billion for U.S. semiconductor research, development, manufacturing and workforce development — was developed.
During the signing ceremony, Biden mentioned an “analysis” as the source for the claim that 1 million construction jobs would be created. In the tweet, which has recorded more than 5,000 retweets and 31,000 likes, the president treated the number of “more than 1 million construction jobs” as an established fact. But we were puzzled when we did not see the figure in the White House’s “fact sheet” on the bill.
It turns out this number is wildly exaggerated.
The first tip-off that the number is fishy is because the number is so big and round — 1 million.
President Bill Clinton famously — and incorrectly — claimed in 1993 that the North American Free Trade Agreement would create 1 million jobs in five years. But that only happened because his staff accidentally supplied him with an early draft of remarks that included a made-up placeholder number. The White House quickly admitted the error.
The second tip-off is that Biden was specific — 1 million construction jobs in six years. Before the pandemic tanked jobs, the U.S. economy took four years to add 1 million construction jobs, according to Bureau of Labor Statistics data — from all industries, not just the semiconductor business.
When we asked the White House for documentation, we were directed to a 2021 report issued by the Semiconductor Industry Association. That report touted the contribution of the semiconductor industry and examined the potential impact of a $50 billion federal investment program, similar to the Chips Act.
That’s the third tip-off — this is a report issued by an industry advocate. With all respect to the SIA, it’s not neutral on the matter. It would be unusual for any trade group to issue a report that did not put the best gloss on the industry’s economic contributions.
When we dug into the report, moreover, we could not find any reference to 1 million construction jobs being created. Instead, the report predicted such an investment — roughly equivalent to the Chips Act — would create “an average of 185,000 temporary jobs annually throughout the U.S. economy from 2021 to 2026.”
Six times 185,000 adds up to more than 1 million. But note that these are not all construction jobs. In fact, few are construction jobs.
“The statement about 1 million construction jobs is not accurate,” said Sarah Ravi, a spokeswoman for the association. She directed us to a chart in the report that indicated that a $50 billion investment would create an additional 6,200 construction jobs.
Hamilton Galloway, head of consultancy for the Americas at Oxford Economics, which crunched the numbers for the report, said the 1 million jobs would be created during what he called the six-year “construction phase” of the Chips Act investments. He said the largest share of jobs said to be created stems from capital expenditures — the purchase of semiconductor manufacturing machinery and other capital goods. In other words, not construction.
Note that the report said the jobs would be “created throughout the U.S. economy.” That means this is a calculation that includes direct jobs created — plus indirect jobs (via the supply chain) and induced jobs (people spending the wages they earn). These figures were calculated via economic impact software developed by IMPLAN, an economics firm, derived from the Commerce Department’s Bureau of Economic Analysis (BEA) input-output tables. These tables are used by economists to understand how industries interact with each other and with the rest of the economy. Depending on the industry, the creation of one job may reverberate differently in the economy.
IMPLAN provides the example of how the impact of a new vehicle manufacturing plant might be traced through the economy. Indirect effects would include the plant buying tires, electricity, advertising and paint — and then the tire company buying rubber, the electricity company buying coal, the advertising firm paying rent and the paint manufacturer buying chemicals. The induced effects would be the plant workers paying rent, buying groceries, getting haircuts — and then the real estate employees, grocery store employees and hair salon employees paying rent, buying groceries and getting haircuts. (The calculation also has to take into account the impact of taxes, profit-making and wages being placed into savings, all of which would reduce job creation.)
In the case of the semiconductor industry, the SIA report said the job multiplier for the semiconductor industry was 6.7, or 5.7 indirect and induced jobs for every direct job created.
During the 2011 debate over how many jobs would be created by the Keystone XL pipeline, we revealed how a report touting the benefits of a wind farm project had calculated such indirect and induced impacts to an absurd degree. Among the list of jobs that would allegedly be created by a proposed investment in wind farms: 51 dancers and choreographers, 138 dentists, 176 dental hygienists, 100 librarians, 510 bread bakers, 448 clergy, 154 stenographers, 865 hairdressers, 898 reporters, 136 manicurists, 110 shampooers, 98 public relations people, 65 farmers, and (our favorite) 1,714 bartenders.
The SIA report does not go to such lengths. It transparently says about half of the supposed jobs being created come from induced effects: “531,000 jobs will be supported as a result of workers spending their wages on consumer goods and services, such as groceries, utilities, and transportation.”
To get back to Biden’s emphasis on construction jobs, Galloway noted that the jobs “supported by construction,” such as cement manufacturing, would be higher than the 6,200 figure. The report estimates that about 56,000 direct jobs within the construction sphere would be created, with a total of nearly 120,000 through indirect and induced effects. That’s still much less than Biden’s 1 million.
There’s another issue with such calculations. They do not consider the state of the business cycle at the time of the investment. The Federal Reserve is now raising interest rates and the economy could be headed for a recession. “Input-output models don’t directly model a net change in jobs economywide, only the gross number of new jobs as a result of the expenditure,” Galloway said.
Wendy Edelberg, former chief economist at the Congressional Budget Office and now a senior fellow at the Brookings Institution, was dubious about the job multiplier in the report.
“Those numbers seem implausible,” she said in an email, as the semiconductor industry does not operate in a vacuum. “Equipment manufacturers could manufacture other things if orders from chip companies didn’t expand in the U.S. or abroad. Or, if no one wants to buy equipment, those workers who would have made equipment could work elsewhere,” she said. “In that sense, it absolutely matters if we are in a recession. In the current economic environment, there is likely sufficient demand to employ workers either at the related industries, doing other things, or simply in different industries.”
Edelberg added: “There are no doubt positive benefits to expanding U.S. capacity to make chips, now and in the long run. But, that benefit doesn’t include expanding the number of jobs.”
The White House initially defended the figure but eventually conceded it was wrong. “There was a mix-up and this should have referred to the total jobs resulting from the legislation, but that doesn’t detract from the historic nature of this move to rebuild our manufacturing and supply chains here at home, and to win the competition with China in the industries of the future,” a White House official said.
The Pinocchio Test
There’s often a temptation for a politician to cite the highest possible job creation for a new policy. But the president stumbled badly here. In public remarks, and then in a tweet, he claimed 1 million construction jobs would be created because of the Chips Act.
The real number was just 6,200, according to the industry-commissioned report cited as the source. If you wanted to be generous, you could say the report said 56,000 jobs would be supported by construction. If you wanted to be very generous, you could say 1 million jobs would be supported in the “construction phase” of the law. But that would be overly generous, given that the White House amplified Biden’s statement in a tweet; it was not a simple misspeak.
There’s also the separate issue as to whether indirect and especially induced jobs should be part of such political talking points — especially in an uncertain economic period when the number of jobs may not expand.
But in any case, there is no reason to get the number so wrong — twice. While the White House concedes a “mix-up,” the tweet has not been deleted; neither has the official transcript been corrected. The president earns Four Pinocchios.
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