FEDERAL CONTRACTS BRING HIGHER-PAYING JOBS
When Oshkosh Corp. landed a contract to produce delivery trucks for the United States Post Office, the company decided to split the tasks: 100 design jobs would be located in Oshkosh Wisconsin and 1000 production jobs would go to South Carolina. Wisconsin Senator Johnson spoke approvingly of this division of labor, stating that Wisconsin has plenty of jobs already: "It's not like we don't have enough jobs here in Wisconsin. The biggest problem we have in Wisconsin right now is employers not being able to find enough workers."
That is a rather odd thing for a U.S. Senator from Wisconsin to say, seeming to defy market process. Although this is a long-term contract, the labor shortage Johnson refers to is a temporary market adjustment to the hot national economy. In addition, the labor market has been further complicated by Covid and the concern for workplace safety, a complication lessened by the success of the vaccine and its distribution. This USPS contract can contribute to the long-term process of capital accumulation essential for stable demand for well-paid workers.
In his statement, Senator Johnson ignores two additional, broader economic concerns. First, climate implications: the federal government is anxious to modify the contract to build a truck fleet that is more climate-friendly. Wisconsin can become a major player in the burgeoning market for electric vehicles.
Second, the construction contracts would put more federal dollars into circulation in Wisconsin, stimulating economic development well beyond the initial contract.
The Biden Administration has set a national goal of net-zero carbon emissions by the year 2050; meeting that goal will require the replacement of fossil fuel-powered vehicles with electric vehicles. The Environmental Protection Agency has asked for a review of the contract, as it stands only 10% of the Oshkosh contract is for battery-powered electric vehicles (BEVs).
The country has built its transportation infrastructure around the interstate highway system and the local and state highway grids. The recently-passed bi-partisan infrastructure bill is a further commitment to that network. The electrification of vehicles is imperative, especially large vehicles like buses and freight and local delivery trucks. This will entail a multi-decade conversion; Wisconsin companies can gain a competitive position in a high-demand industry, rather than cede this high ground to other states and to China. Large government truck-fleet contracts give the private market a jumpstart. A contract that provides both quantity and price per unit greatly reduces the risk of capital accumulation first to fulfill the contract for several thousand Postal Service trucks and later to compete in the market for other private-sector vehicles like delivery trucks sought by FedEx, Amazon, UPS, etc.
Economic Development Multiplier
Federal money to build or convert postal delivery trucks will have multipliers far beyond that particular contract. Like all of the 50 states, Wisconsin is in an economic federation. When money enters the state from the federal government, it is initially spent on the initial purpose, in this case, payment in exchange for a manufactured good. But then that money gets paid out in salary and wages to the many individuals -- from CEO to line worker to janitor --who took part in the fulfillment of that agreement -- i.e., the design, capital installation, manufacture, and delivery. The money gets spent again in accordance with the preferences of all those people. They spend the money on rent, food, gasoline, pet supplies, for myriad other goods and services, supporting jobs and wages in those markets. The people who supply the apartments, food, gasoline, etc. receive payments as income and re-spend the money according to their preferences. The money is spent multiple times, in each round stimulating more economic activity.
Wisconsin has invested in its comparative skill advantage for fulfilling complicated long-term contracts: its experienced and educated workers, graduates from the UW and private university engineering schools, as well as graduates from the vocational-tech schools and trade apprenticeship programs. Steering federal contracts to state firms would boost not only the accumulation of capital in the private sector and the growth of labor demand but also the return on the taxpayer investment in the educational and skill development enterprise while contributing to the national goal of net-zero carbon emissions.
William L. Holahan is an Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.