Academic journal article Federal Reserve Bank of St. Louis Review

The 2009 Recovery Act: Directly Created and Saved Jobs Were Primarily in Government

Academic journal article Federal Reserve Bank of St. Louis Review

The 2009 Recovery Act: Directly Created and Saved Jobs Were Primarily in Government

Article excerpt

In February 2009, the U.S. federal government began its largest anti-recession fiscal stimulus in over 70 years when it passed the American Recovery and Reinvestment Act (ARRA; i.e., the Recovery Act). (1) The Congressional Budget Office (CBO)'s most recent assessment is that the cost of the Act will eventually total $821 billion. (2) This article studies the employment effects of the stimulus using a new dataset. (3)

The data consist of legally mandated reports provided by the universe of awardees of stimulus funds. In particular, each recipient of a contract, grant, or loan was required to file a report every three months that included a self-constructed estimate of the number of jobs directly created and/or saved as a result of its stimulus funding, as well as a general description of these jobs. Created and saved jobs represent, precisely, the full-time equivalent (FTE) of jobs funded by first- and second-tier awardees of and contractors on ARRA grants, loans, and contracts. (4)

Using these reports, I estimate that at the one-year mark of the program, 166,000 of the 682,000 jobs directly created or saved by the Act were in the private sector. Thus, fewer than one of four stimulus jobs were in the private sector. In contrast, more than seven of nine jobs in the U.S. economy overall reside in the private sector. (5)

To my knowledge, this article is the first that uses direct survey evidence to assess how many private sector and government jobs were funded by the Recovery Act. Recent years have seen an ongoing public debate on the differences (or lack thereof) of the stimulative effects of the two types of employment.

While limited in quantity, the direct creation/saving of private sectors jobs was not trivial. For example, the U.S. Department of Transportation administered ARRA projects that directly created and saved thousands of private sector jobs, most of which were in the depressed construction industry; however, transportation jobs made up less than 5 percent of all jobs reported in this period.

This article provides an empirical contribution to the debate on the ability of the government to stimulate the private economy, with particular focus on jobs. One view expressed in this debate is that there is little difference between private and government employment. "'Spending is spending,' said Lawrence J. White, an economist at New York University's Stern School of Business. There is no difference in the multiplier effect from a private sector job or a public sector job" (see Jacobson, 2013). Similarly, in a discussion of the composition of jobs created by the Recovery Act, Blinder (2013, p. 226) writes, "Aren't government jobs jobs?"

An alternative view holds that, with respect to boosting the economy, jobs created in the private sector are likely to be more effective stimulus and that the government is ineffective at private sector job creation. In a letter to President Obama sent in February 2011, 150 economists from universities and research institutes signed this statement: "Efforts to spark private sector job creation through government 'stimulus' spending have been unsuccessful." The letter goes on: "To support real economic growth and support the creation of private sector jobs, immediate action is needed to rein in federal spending." (6) Along these same lines, Cohen, Coval, and Malloy (2011) find that state-level fiscal spending shocks, driven by changes in the seniority of various U.S. Congress members, caused a decrease in the corresponding states' corporate employment and investment.

The outcome that I document has a different flavor than the one predicted by advisers to President-elect Obama. On January 9, 2009, Jared Bernstein and Christina Romer wrote "More than 90 percent of the jobs created are likely to be in the private sector." (7, 8)

My estimate is also different from at least one media report assessing the results of the stimulus. …

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