ChainWhat it assumes · how to break it
Start
The government invests in infrastructure, for example new rail links, roads, broadband and energy networks.
1
As a result, construction firms hire workers to build the projects, since the demand for labour is derived from the demand for the projects.
derived demand
derived demand
Assumes: Unemployed workers have the skills construction needs.
But: Construction already faces skills shortages, so firms may bid workers away from other projects or recruit from abroad, and unemployment falls little.
2
This means incomes rise and, through the multiplier, demand rises in other industries, so cyclical unemployment falls.
multiplier · cyclical unemployment
multiplier · cyclical unemployment
Assumes: There is spare capacity.
But: Close to full employment, the extra demand raises wages and prices rather than jobs.
3
In addition, better transport and broadband cut the time and cost of reaching work, so people in areas of high unemployment can take jobs further away.
geographical mobility · structural unemployment
geographical mobility · structural unemployment
Best link to attack
Assumes: Jobs exist within reach once links improve.
Assumes: Jobs exist within reach once links improve.
But: Better links can also let firms serve a region from a big city, so some local jobs move to the city rather than new ones being created.
4
Consequently, firms are more willing to locate in areas with good transport and broadband, creating long-term jobs.
investment · regional policy
investment · regional policy
Assumes: Poor infrastructure was the main barrier to firms locating there.
But: Firms also need skilled workers and nearby suppliers, which better links alone do not provide.
End
Employment rises: temporarily while the projects are built, and permanently if mobility and business investment rise.
Evaluation chain
- E1However, the lasting effect on employment depends on whether better links bring jobs to depressed areas or draw them away.
- E2Because firms can serve a whole region from a larger city once journeys are quicker, some close local branches and concentrate activity where they already have workers and suppliers.
- E3As a result, people in the poorer area may commute or move to the city, while few new jobs are created locally.
- E4So total employment may rise less than expected, and the gains may go to the big cities rather than the areas of high unemployment the project was meant to help.
Construction jobs come first and end when projects finish; the supply-side gains take years.
Can you say this chain from memory?
Members can hide the links, test themselves and track which chains they have mastered.
Practise this chainMembers can hide the links, test themselves and track which chains they have mastered.
Questions this answers
- Assess the impact of infrastructure investment on unemployment.
- Discuss whether infrastructure spending is the best way to reduce regional unemployment.
- Explain how improved transport links might reduce structural unemployment.
Diagram
AD/AS: AD shifts right during construction; LRAS shifts right as mobility and productivity improve. A labour market diagram for construction can show demand for labour shifting right.
Reverse and related
Cancelled infrastructure projects → fewer construction jobs → poor links keep geographical immobility high.