Towson University’s Regional Economic Studies Institute (RESI) quantifies for the first time the sweeping economic impact of investments by major U.S. railroads.

Each year, railroads fuel billions of dollars in activity throughout the U.S. economy and generate more state and local tax revenues each year than most states collect in taxes. In 2017 (the most recent data available), Class I railroads created $219 billion in economic activity and generated nearly $26 billion in total tax revenues while supporting over 1.1 million jobs across the country.

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The report notes the industry spent nearly $25 billion in capital and maintenance expenditures that year, an amount equal to more than half of all federal government spending on transit formula grants, federal highway construction programs and airport improvement programs.

“Railroads maintain high-paying jobs and create numerous jobs in related industries that collectively spur significant economic activity,” said Dr. Darius Irani, co-author of the study and chief economist at RESI. “Significant capital investments by railroads and the steady presence of a coast-to-coast network that can reliably deliver goods at a cost-effective rate generate a ripple effect seen in this study. Railroad spending means job growth, funding to communities and global competitiveness.” 

A Wide Footprint

Examining what they called freight rail’s “wide footprint on the economy,” the RESI researchers analyzed the impact of the nation’s seven major Class I railroads with U.S. operations: BNSF Railway, Canadian National Railway, Canadian Pacific Railway, CSX Transportation, Kansas City Southern Railway Company, Norfolk Southern Railway and Union Pacific Railroad.

The researchers found that the railroads’ operations and capital investment in 2017 generated $219.5 billion in goods or services produced — or 1.1% of total U.S. economic output. This spending and investment had significant effects for the national and state economies, including more than $16.7 billion in federal tax revenues and more than $9.2 billion in state and local taxes.

The report finds this economic activity is helping to put Americans to work, particularly in high-paying jobs within the rail industry, which, in turn, reaches communities. In 2017, the average U.S. Class I freight railroad employee earned $87,100 in annual wages and $38,300 in fringe benefits, for a total average yearly compensation of $125,400. By contrast, the average wage per full-time U.S. employee in 2017 was 29% lower at $62,100 annually, and average total compensation was 39% lower at $76,500 per year.

The RESI report finds in 2017, railroads supported about 1.1 million U.S. jobs — or 0.8% of U.S. workers — tied to railroad spending and generated over $71 billion in total wages, with one job in the freight rail industry supporting nine others. For example, railroad activity supported more than 81,000 retail trade sector jobs in 2017, such as those in motor vehicles, furniture and home furnishings and electronics and appliance stores. Railroads also supported roughly 105,000 manufacturing jobs and more than 103,000 transportation and warehousing jobs.

Clifford Winston, applied microeconomist and senior fellow in the economic studies program at The Brookings Institution, argues that railroads are an integral part of a transportation sector that affects every part of the U.S. economy and life.

“If you want to measure the impact of a transportation mode, you must consider what an economy would look like without that mode,” said Winston. “Freight rail is an integral part of the economy.   Its extensive and improved network enables connectivity between buyers and sellers and facilitates trade within the United States and between the United States and other countries. Without an efficient rail network, U.S. industries would incur higher costs, and those costs would raise the prices of a large share of consumer goods.”

Driving Competitive Growth

The Towson study links the economic success of the freight rail industry to milestone legislation passed in 1980 known as the Staggers Rail Act. The law partially deregulated the railroads, and gave them the power to set competitive market rates and operate and grow over their most efficient routes.

“While flat prior to the Staggers Rail Act, rail productivity has increased 139% since the regulation change,” the report says. “Most of these productivity gains were passed through to rail customers — decreasing the cost of utilizing rail transportation.”

Since that time, freight railroads have spent more than $660 billion on the nation’s rail network.

As the researchers note, since the dawn of rail transportation in the 1800s, the industry has played a significant role in the nation’s economy. From creating jobs to enabling cross-country shipping and travel, today’s rail network now spans approximately 140,000 miles and is a linchpin of the world’s most productive economy.

With a continued smart and balanced modern regulatory environment, the report says, Americans will continue to benefit from rail’s positive economic effects every day.