developing countries, they might still be considered of multiplicative value to a regional or global institution although will likely be of little interest to a government counterpart.

3. _<u>Opportunity Cost</u>_ <u>: Any social transfer of resources (not just employment generation from</u> works) will generate Tertiary Effects. In fact, since the propensity of the unemployed and the poor to consume is greater than that of the employed, direct transfers may have a higher multiplier than those derived indirectly from other employment-generating schemes. Consumption from direct transfers may also be quicker to enter the economy than those generated by employment from works.

Using an Input-Output Model that considers all levels of inputs to construction, the US Federal Highway Administration has estimated employment generated or supported from investments in highways.<sup>11</sup> Although these models have a limited ability to predict “new” employment generation from an economy-wide perspective, their outputs provide a sense of the potential range of employment generation as a result of these interventions. According to these calculations, US$1billion in road construction results in 6,055 direct jobs on site and another 7,790 in indirect jobs from material supply (Figure 2). The greatest multiplier effect, however, is derived from estimates of the propensity of those workers to consume which create another nearly 14,000 jobs. This would mean a multiplier effect of about 2.0 for the 6,055 direct and indirect jobs created. The limitations of the model are important to consider as these ratios are applied to Latin America and the Caribbean or other developing regions: i) More than half of the employment generation and two-thirds of the multiplier is derived from tertiary effects and are thus based on assumptions about consumption that do not consider the opportunity cost of the original investment;<sup>12</sup> ii) Substitution effects are not considered; and iii) The model is run “nationally” for the US and thus assumes no importation of construction equipment or material.

Keeping in mind the shortcomings of these calculations—and adjusting for them with available data from LAC on wages, leakages by sub-sector, and skilled and unskilled labor divisions—the approach to calculating direct and indirect jobs may provide a basis for estimating the employment generation potential of investments in all areas of infrastructure in countries outside of the US. A review of project documents, IEG reports, and sectoral ESW provides a sufficient starting point for this analysis with information about construction costs and direct employment levels for a variety of infrastructure projects across Latin America. By assigning wage assumptions to workers according to skill sets, estimating domestic and foreign content for both materials and equipment, a levelized set of results in terms of direct employment can be calculated for a given sum of money expended—in this case US$1billion.

11 JOBMOD2.1: A Comprehensive Model for Estimating Employment Generation from Federal-Aid Highway Projects (2006). Boston University Center for Transportation Studies under subcontract to Battelle Memorial Institute for U.S. Department of Transportation Federal Highway Administration Office of Transportation Policy Studies See also Weels (2008) for more recent results of this model.

12 The Obama Administration is anticipating 3.6 million jobs created out of their stimulus package which includes $170 billion in public works. This calculates to 8,500 jobs per US$1 billion in works—a third of the USFHWA estimates for primary and secondary effects of highway construction, mainly due a composition of labor intensive public works (highways) and projects that are less labor intensive (energy). That is, the US Government stimulus package seems to have discounted deeply the expectation of induced employment generation in calculating the impact of its works program.

6