Can the IRA and CHIPS Act Reduce Labor Earnings Inequality? Lessons from the US Shale Boom

In August 2022, President Biden signed into US law two acts that could have major implications for American manufacturing: the Inflation Reduction Act (IRA) and the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act. The IRA allocates a significant sum of money to investments in manufacturing, particularly in the clean energy sector. The IRA created or supplemented more than 20 tax incentive programs aimed at boosting manufacturing and clean-energy production.¹The CHIPS and Science Act makes substantial investments in semiconductor research and manufacturing that amount to nearly $53 billion, including $39 billion toward manufacturing incentives, and a 25 percent tax credit for capital investments in semiconductor manufacturing. As of August 2023, the Department of Commerce reported that it had received more than 460 statements of interest from companies for projects in the semiconductor industry.²

Estimates suggest that the manufacturing incentives from these two acts have already spurred large investments in private-sector manufacturing across the country. A number of large projects were announced between the introduction of the bills in Congress and the signing of the bills. In August 2023, the White House reported that, in the one year since CHIPS was signed into law, companies had announced more than $166 billion in manufacturing in semiconductors and electronics investments.³Alternatively, the Financial Times estimated that, in this same time span, at least $224 billion in cleantech and semiconductor projects had been announced and were expected to create 100,000 jobs.⁴According to a more recent estimate by Jack Conness, as of March 2024, at least 182 projects linked to the IRA and the CHIPS and Science Act had been announced. His estimates indicate that these projects amount to more than $263 billion of investment, 113,400 new jobs directly created, and hundreds of thousands of jobs indirectly created.⁵There are indications that the acts are already affecting the aggregate data. As shown in Figure 1 (a), total construction spending in manufacturing increased by more than 85 percent from August 2022 to March 2024, from $119.3 billion to $222.6 billion. Furthermore, construction spending in manufacturing had already been on the rise, increasing by nearly 50 percent from August 2021 to August 2022, potentially in anticipation of these two policies. Most of the increase in manufacturing spending has been driven by the computer, electronic, and electrical sub industry, which were directly targeted by these two policies. This is shown in Figure 1 (b). In the year leading up to the passage of the IRA and CHIPS Act, this subsector experienced a 311 percent growth in construction spending; since the acts were approved, the construction spending in this subsector has grown by an additional 190 percent. It now represents 58 percent of total manufacturing spending, up from 27 percent at the beginning of 2022.