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S3E1 - State Capacity and Infrastructure Costs w/ Cailin Slattery
27 Plays28 days ago
Host Seth Scott interviews Cailin Slattery, Assistant Professor of Economics at the University of California, Berkeley Haas School of Business. Cailin brings us her findings from the paper “State Capacity and Infrastructure Costs” (co-authored with Yale Law School Professor Zachary Liscow and Columbia University's William Nober). Key findings of the report:
👉 One addtional transport employee per 1,000 residents is correlated with 26% lower costs at the project level.
👉 Experience engineers and professionals in the upper 75th percentile are associate dwith 14% rductions in project-level costs.
👉 A single high-quality engineer can save a project up to $750,000 a year
👉 The departure of an experienced engineer can result in cost increases equal to six times their salary. This is equally true if they leave for retirement, the private sector, or an overseas position.
👉 For all these reasons, proponents should be willing to pay up high-quality engineers up to $300,000 per year, well over twice the industry average, to reain that knowledge in house, in the pipeline, and available to the next generation of professionals.
⭐ Links to some of the resources mentioned in the podcast: "State Capacity and Infrastructure Costs": https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4522676
Yale Tobin Center for Economic Policy: "Experienced state employees can deliver big savings on infrastructure": https://tobin.yale.edu/research/experienced-state-employees-can-deliver-big-savings-infrastructure
👉 We'd love to hear your feedback, share your thoughts on the comment section below.
👉 Like & Subscribe so you won't miss out on our upcoming episodes!
👉 Keep up to date with the Infrastructure Sustainability Council:
Website: https://www.iscouncil.org/
LinkedIn: / infrastructure-sustainability-council
#podcast #infrastructure #sustainability #buildingtomorrow
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Transcript
Rethinking Government Efficiency
00:00:00
Speaker
Increasing government efficiency, that sounds great. i don't disagree with that, right? i just my idea for increasing government efficiency is to hire more government employees and to support them.
00:00:14
Speaker
Welcome back to Infrastructure Connections, the podcast where we explore what makes infrastructure work. Brought to you by the Infrastructure Sustainability Council, I'm your host, Seth Scott, and today we'll be speaking to Kaelin Slattery.
Guest Introduction: Kaelin Slattery
00:00:27
Speaker
Kaelin is an assistant professor of economics at the University of California, Haas School of Business. Working with Yale Law School professors Zachary Liskow and William Nober of Columbia University, she co-authored a paper titled State Capacity and Infrastructure Costs.
Research on State Employees and Cost Savings
00:00:42
Speaker
The data showed that experienced state employees, like engineers, were worth three times their salary and cost savings for infrastructure projects. Hi, Caitlin. Welcome to the show.
00:00:55
Speaker
Hi, Seth. Thanks for having me. So your research is mostly around government spending and private companies. um Tell me about what you you typically research. Yeah, so I'm interested in all interactions that state and local governments have with the private sector. um So this project that we'll talk about today is about procurement and infrastructure, as well as ah some projects on how state governments choose regulations and how influenced they are by local lobbying.
00:01:24
Speaker
So you found that about per 1000 residents, you should have one additional transport employee and that'll lower costs by up to 26% on the project level.
00:01:35
Speaker
We don't see like at a granular level, how many people worked at a given project or how many hours they spent on it. What we see that the state, how many people are employed at the, in highways in the, in the state government.
00:01:52
Speaker
And we can correlate that with the average costs in that state. And what we see is that states that employ more people per capita um have lower project costs.
00:02:05
Speaker
um You know, some of this could just be that um people have projects If you have more work to do, you're slower at any given project, right? So you just, they're they're they have a high high workload. And so the if if you have many projects on your on your desk,
00:02:24
Speaker
the contractor asks you a question about one specific project, you take a little bit longer to get back to them, that leads to higher costs on the ground, right? Like, so small things like that can add
Challenges in Hiring Qualified Engineers
00:02:34
Speaker
up. It also could be a symptom of a struggle to hire, like, qualified engineers, which a lot of states report, and they they'll do, I've read many, like,
00:02:47
Speaker
internal reports commissioned by state DOTs about how they're struggling to fill open ah positions in state government, um partly because they're not offering competitive wages compared to the private sector, partly because, and this I'm I don't have research to back up on, but it seems anecdotally that you know less college there are less college graduates coming out with civil engineering degrees. more college it more These people are instead studying computer science or or something. Yeah.
00:03:23
Speaker
That was the next point, was that you'd recommended that the higher quality employees actually result in lower project level costs as well. So up in the 75th percentile, how did you calculate that? we We wanted to get at some measure of, you know, how much does any one engineer explain of like how well a project goes.
00:03:45
Speaker
But we have many engineers and um ah many times we only observe them working on one or two projects. So it's hard to kind of disentangle what that one person's impact was.
00:03:59
Speaker
Um, so what we use is, um, the fact that they're state employees and they have a very specific pay scale and we observe what their compensation is.
00:04:09
Speaker
And so we know where they are on their pay scale basically. And so if you get paid more on the, that means that can mean three things. Basically you've been, you've been working there for longer. So you're more experienced.
00:04:23
Speaker
Um, you, uh, are better at your job. So you've gotten promoted quickly, even like conditional experience, or you are, have become licensed as a professional engineer in the state. So you've done gone through like the, uh, rigor of this extra professional training and stuff, um, which not everyone does.
00:04:44
Speaker
And so, um those, those engineers that are higher in the, in the, in the pay scale are the ones that are, uh, able to reduce costs at the project level.
00:04:56
Speaker
We also know that these engineers are the ones that are assigned to more complicated projects. So it's even more impressive that we find this this relationship between quality and cost, right?
00:05:10
Speaker
Sure.
The Importance of Project Planning
00:05:11
Speaker
And what does that quality translate into as far as tasks go that are going to impact the bottom line? You know, investment and effort in any one phase of the of the project can can influence costs. I can give a couple of examples. so For example, um in design stages, you really need to be very detailed in the design of of the project. So, you know, we'll see examples of um the the project being planned, it's let out to bid, so the contractors bid on the, see the plans and they say how much it's going to cost them to complete the project. And then the the lowest,
00:05:55
Speaker
generally the lowest bidder will win so the the ah project. and then the the contractor gets to the to the ground and they start, you know, let's say it's a resurfacing project, but they have to dig up the existing asphalt.
00:06:10
Speaker
They dig up the existing asphalt and then there's, you know, something right underground that they didn't expect to find, right? When you plan the project, you should know that there's going to be something there, like the sewage line or something that's right there.
00:06:25
Speaker
And so this is now we have to go back to the ah to the to the government. We have to say, hey, look, this is here. You didn't tell me it was going to be here. my costs are higher because of this.
00:06:36
Speaker
Now you're negotiating with one guy. You're not negotiating with a set of bidders. And so that's, you know, because of the planning of the project, you're leaning to higher costs.
00:06:47
Speaker
Sometimes bidders can see this from from at the bidding stage. They look at the plans, they say, These plans aren't very detailed and that's risk to them. And so they reflect that higher risk and higher bid going in. um Even in a bid letting, you can put an effort in increasing like the bidder pool. So in the survey that we did across states, we saw that states that do bidder outreach have have lower costs. And that's one thing that the that engineers can do.
00:07:20
Speaker
And some engineers have a good reputation. They're people that like the contractors know they're easy to work with or they're good to work with. And they might see that you're the manager of the project and they're more likely to to bid on that project.
00:07:34
Speaker
um So yeah, I think that it's hard to say what any engineer is doing right, but there are there are many small things along the the way that you can do.
Training and Retaining Engineers
00:07:46
Speaker
You'd mentioned earlier how it's harder to get new grads or people to go into studying engineering as opposed to other fields. um One of the problems we're having in New Zealand is of the lack of the pipeline that we need more people coming into the engineering field in order to gain that experience in first in the first place and also to gain experience from more experienced workers.
00:08:07
Speaker
um How do you see that playing out through um this research? when experience not only when experienced engineers are assigned to a project those projects are lower cost when the experienced engineers retire then costs at the district level go up right so the whole office basically that those projects are coming out with those costs go up and so you know the retired engineer is but is replaced by someone and they probably hired a ah new engineer you know at the entry level position but it
00:08:42
Speaker
you would think there there would be like very large benefits to having more overlap between the experienced engineer and the and then new hires, right?
00:08:53
Speaker
Partly because there are so many rules and regulations in this setting, experience becomes so valuable because you know what to do in any, you know, contingency. um and And so some of the complaints we hear about the new engineers from the contractors is that, you know,
00:09:12
Speaker
they don't know what to do. And so anytime we have a question or something comes up, they have to go back to the rule book. So they go back to the office and they they go through the rule book and they find out what to, whereas the experienced engineer knows exactly what to do. and and um And so there's this interesting interaction between experience and and and between capacity and regulation, I think in in this setting.
00:09:35
Speaker
But yeah, they they say similar things in internal reports that state DOTs do to what you were just saying, that they would they would like to have more opportunities to train the new engineers, their struggle hiring them.
00:09:51
Speaker
And there's a lot of worry about consultants, reliance on consultants. So if you're understaffed, then you are hiring a consultant from the private sector to do to do the work. um And there's a lot of worry that if they don't hire engineers,
00:10:07
Speaker
entry-level engineers and train them, they only hire consultants, then in 10, 20 years, there's not going to be anyone to oversee their consultants, right? And so so this is a this is a big concern in some states.
00:10:22
Speaker
One of the things that you showed was how much how valuable engineers are, but you wanted to put a dollar value on that as well. So the current engineer salary average is about $168,000, and you're arguing that it should be as high as $300,000 a year.
00:10:38
Speaker
I think a lot of engineers are happy to hear that. So can you tell me how you came up with that number and and why
00:10:46
Speaker
Yeah. So first I'll say, so the, all of the engineer quality analysis that we did was for the state of California and in the state of California, actually on average, the average public sector wages is pretty similar to the private sector. It's at the top of the distribution where you see the differences. So, so we take a compare like a, a higher quality engineer and see how much they can reduce costs on a given project.
00:11:13
Speaker
is the number that we've been talking about earlier. um So it was it's something like $300,000 per mile. um Then you have to scale that by the average size of a project and also the number of projects the engineer works on per year.
00:11:32
Speaker
Since these are bigger projects that the more experienced engineers work on, they really work on like one project every two years. So you end up with something like 750,000
00:11:42
Speaker
um dollars per engineer year, that's the value of ah ah of a substantial increase in quality. like You can think of it maybe like five to 10 years of experience. And so the point I'm trying to make is just that the state should be more than willing to offer them the private sector wage to retain them and keep them in the public sector instead of the private sector.
00:12:06
Speaker
So what you're saying is that since they're going to be able to save $750,000 a year through their experience, then it makes sense that the state would pay them up to $300,000 a year, which is what they would be paid in the private sector in order to keep them in the public sector.
Consultants vs In-House Expertise
00:12:22
Speaker
Exactly. Yeah. you you That summary was very succinct and and and not overly complicated. That's exactly it. Yes.
00:12:33
Speaker
You'd mentioned the use of external consultants. ah Does the use of external consultants make costs rise? So we do see that states that cite consultant use as an issue have higher costs. And so you may assume that those set states where they're citing consulting use as an issue have, are the ones that may be overusing consultants, as you said.
00:13:01
Speaker
Again, unfortunately, we do not observe like at the project level, does this project use a consultant, does this one not? um That would be very cool to see. But in the in the macro aggregate kind of survey level analysis, it does seem consultant uses one of our few like statistically significant correlates.
00:13:25
Speaker
I think that's something that we see here. um Government departments tend to be very small and they don't have as much in-house staff. And as a result, they do rely on external consultants quite a bit.
00:13:38
Speaker
um And then as a result, we have very high costs for infrastructure. So I imagine there's some kind of correlation there. And there's an interesting thing about consult. So there are two things going on with the consultants cost, I think. One is it may just...
00:13:54
Speaker
cost more per hour pay the consultant than it would and and in-house. That's not what we're measuring. Again, we're measuring the project cost, which is like the cost you're paying the contractor who's who's building the project.
00:14:08
Speaker
And so what it means is like the states where they're relying on consultants more actually are having some issues that like in planning the project, for example, that's leading to to to higher costs.
00:14:22
Speaker
And that that could just be a whole host of agency issues where the consultant doesn't know all the institutional details as as well as the an in-house person would um and ah or doesn't have the exact same incentives as the in-house person does to keep costs low, things like that. and So, yeah, I think that that it is it can be a real ah real issue.
Staffing Strategies to Reduce Costs
00:14:49
Speaker
So it looks like basically the right policy is to hire more public employees and hire the highest quality employees possible and offer them salaries comparable to the private industry, just to keep as much work in-house and keep that pipeline going so that engineers stick around, train the next generation.
00:15:08
Speaker
Is this how governments save money in general on infrastructure projects? I think our results suggest that's the case. I mean, i it's easier said than done, i think.
00:15:19
Speaker
If we can make ah civil engineering cool again, and think that that also ah um could have a sizable impact.
00:15:31
Speaker
Again, I don't want to say that this is the the only thing that that ah tribes cost in the United States. I think there are other issues with ah competition and how...
00:15:43
Speaker
um and and perhaps on how projects are designed and like environmental review as you as you brought in before that that go into costs that we're not necessarily able to measure in this project.
00:15:55
Speaker
But state capacity is a big piece of the puzzle, yeah. I guess big picture, it kind of puts us in a tight spot then because right now, governments that we have around the world currently are looking at ways to cut their departments and to lower the number of and government employees and to reduce the costs of government projects.
00:16:18
Speaker
And it sounds like um what this paper says is that we need to do the opposite. How do we go about convincing taxpayers that those government workers are worth it? and Is it really just a trust issue at this point?
00:16:33
Speaker
Yeah, I think that that's a great point. i Definitely a trust can be a trust issue. Of course, you know, increasing government efficiency, that sounds great. i don't disagree with that, right? i just, my my idea for increasing government efficiency is to hire more and more government employees and to support them and Elon Musk's idea of increasing government efficiency is to fire those people. So, you know, um and I think this paper and provides some nice evidence that that that was actually a very bad idea.
00:17:11
Speaker
um And so and so if you If you're going to have a government that's going to provide public goods, public services for and citizens, right, in order to do that, it needs the capacity to to to do it well. And the capacity is is people who are trained and experienced and compensated for their work.
Improving Hiring and Training Processes
00:17:33
Speaker
So do you have um any advice for the people who are listening, who are working for government agencies or who are engineers currently around how they might advocate for more hiring, hiring higher quality or higher salaries?
00:17:47
Speaker
um And what can they do from the inside to affect this issue? You know, the the exercise that we do in the paper with the salary, that's probably the hardest thing to implement in terms of if you're working in the in the government agency.
00:18:02
Speaker
But I think that you know there are a lot of intermediate steps in terms of um you know more actively recruiting at school local schools, things like this, more smooth like streamlining hiring processes.
00:18:18
Speaker
um So there's a lot of bureaucracy in the hiring process that might dissuade, you know, you have an engineer choosing between the public sector job and the private sector job and the public sector job. They're making the hiring process is very arduous. You know, these are things kind of relatively small um policy changes that might make the, um make,
00:18:45
Speaker
make a difference. Also starting the hiring process much earlier. So you have this overlap between the entry level engineers and and the and the outgoing talent. I think the all of those things may be something that that the current government employees can and take.
00:19:07
Speaker
Yeah, I would also say to them, you know, give up the great work. I'm not trying to give them more work you should do.
Podcast Conclusion and Call to Action
00:19:16
Speaker
Well, thank you, Kaylin. Thank you for joining us on the show. We really appreciate it. And good luck with your future work on these papers. Thank you. Thank you for having me. so Thank you for listening to Infrastructure Connections.
00:19:27
Speaker
Please take a moment to follow us wherever you get your podcasts. And if you're watching this on YouTube, leave a comment down below to let us know what your thoughts are on this episode. Or drop us a line at the Infrastructure Sustainability Council.
00:19:40
Speaker
Stay tuned for the next episode of Infrastructure Connections.