Is There a Jobs Benefit in DOD Spending?

For years and years, advocates of big defense spending have argued there is a major economic benefit -- jobs.  These claims are ever more strident now because of high unemployment and threats to further growth in the defense budget.  Hearing the footsteps on the unaffordable, underperforming F-35, Lockheed, among others, touts the jobs they pretend the program creates.

 

The defense budget does create jobs, but it is highly inefficient at it.  Large portions of the total defense budget are spent on things that have nothing to do with jobs in the US; even the procurement and R&D accounts (i.e. the portions that porkers in and out of Congress claim to be US-jobs-rich) are terrible investments for employment.

 

In 2007 the University of Massachusetts at Amherst published a study on the matter; find it at http://www.ips-dc.org/reports/071001-jobcreation.pdf.  The study was updated in 2009; find the update at http://www.peri.umass.edu/fileadmin/pdf/published_study/spending_priorities_PERI.pdf.  William Hartung, the author of an excellent history of the Lockheed Corporation ("Prophets of War"), has written a concise summary for the Center for International Policy.  That summary is below: more defense spending will actually result in a net loss of US jobs.

 

In Bill Hartung's summary, note the anecdotal data about the F-35: even according to Lockheed, 85% of the spending for the program is for overhead; according to the program's chief advocate in DOD, Ashton Carter, just 1.5% of program funding is for labor at the program's primary Forth-Worth, TX plant.  These assertions -- revealing as they are -- come from the advocates and may be -- shall we say -- incomplete; they would make an excellent subject for an audit -- a jobs audit -- by an objective and competent authority, such as GAO. 

 

That no such audit is available is just another bi-product of the bi-partisan nature of Congress' pork system: both Democrats and Republicans love to pretend they are bringing home the bacon in the form of jobs with local defense spending.  Not necessarily so.  In 1998, I asked GAO to study the economic impact of defense spending on the State of New Mexico (I worked for Senator Pete Domenici, R-NM, at the time). GAO found that the number of jobs that DOD contractors created in New Mexico from procurement and R&D spending there was absolutely puny.  Find this study at http://www.gao.gov/archive/1998/ns98057.pdf.  Unfortunately, however, knowing how weak DOD contractor spending was at creating jobs in New Mexico did nothing to slow down Senator Domenici's all consuming aggressiveness in chasing down every single morsel of DOD pork he could find.

 

The jobs argument is one of many that big DOD spenders in Congress, industry and think tanks will tout as they oppose reductions in the Pentagon budget this fall.  In doing so, they will throw around impressive numbers -- conveniently provided by contractors, not by independent researchers.  Contrary evidence, like the University of Massachusetts study and Hartung's summary will be studiously ignored, but that's a prime characteristic of a system, like Congress, where convenient myth is valued far more highly than awkward data.

 

Hartung's summary of the issue follows:

 

  

Military Spending: A Poor Job Creator

By William D. Hartung

Center for International Policy

September 2011

Plans for cutting the federal deficit have raised an important question: what impact would military spending reductions have on jobs?

          Contrary to the assertions of the arms industry, maintaining military spending at the expense of other forms of federal expenditures would actually result in a net loss of jobs.  This is because military spending is less effective at creating jobs than virtually any other form of government activity. 

Source for chart: Robert Pollin and Heidi Garrett-Peltier, "The U.S. Employment Effects of Military and Domestic Spending Priorities," Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts, October 2009. 

The question is not whether military spending creates jobs - it is whether more jobs could be created by the same amount of money invested in other ways.  The evidence on this point is clear. 

·        A billion dollars spent for military purposes creates 25% fewer jobs than a tax cut;

·        one and one-half times fewer jobs than spending on clean energy production;

·        and two and one-half times fewer jobs than spending on education. 

And though average overall compensation is higher for military jobs than the others, these other forms of expenditure create more decent-paying jobs (those paying $64,000 per year or more) than military spending does.[1]

Part of the reason that military spending creates fewer jobs than other forms of expenditure is that a large share of that money is either spent overseas or spent on imported goods.  By contrast, most of the money generated by spending in areas like education is spent in the United States.

In addition, more of the military dollar goes to capital, as opposed to labor, than do the expenditures in the other job categories.  For example, only 1.5% of the price of each F-35 Joint Strike Fighter pays for the labor costs involved in "manufacturing, fabrication, and assembly" work at the plane's main production facility in Fort Worth, Texas.[2]  A full 85% of the F-35s costs go for overhead, not for jobs actually fabricating and assembling the aircraft.[3]

In a climate in which deficit reduction is the central focus of budget policy in Washington, a dollar spent in one area is likely to come from cuts in other areas.  The more money we spend on unneeded weapons programs, the more layoffs there  will be of police officers, firefighters, teachers and other workers whose jobs are funded directly or indirectly by federal spending.   

    

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[1] Jobs figures come from Robert Pollin and Heidi Garrett-Peltier, "The U.S. Employment Effects of Military and Domestic Spending Priorities," Department of Economics and Political Economy Research Institute (PERI), October 2009.  The study was commissioned by the Institute for Policy Studies and WAND, Women's Action for New Directions. For a summary of these points, see "What Kinds of Federal Spending Create the Most Good Jobs?" available at http://www.ips-dc.org/articles/what_kinds_of_federal_spending_create_the_most_good_jobs  and "Finding New Ways to Create Jobs" available at  http://www.wand.org/wp-content/uploads/2010/08/fact-jobs-08.pdf

[2] U.S. Committee on Armed Services, "Hearing to Receive Testimony on the F-35 Joint Strike Fighter Program in Review of the Defense Authorization Request for Fiscal Year 2012 and Future Years Defense Program," May 19, 2011, p. 14.

[3] Andrea Shalal-Esa, "Lockheed, Pentagon Vow to Attack F-35 Costs," Reuters.com, May 12, 2011.

_____________________________
Winslow T. Wheeler
Director
Straus Military Reform Project
Center for Defense Information
301 791-2397