Journal of Monetary Economics2013-09-05 2:57 AM

The American Recovery and Reinvestment Act: Solely a government jobs program?

Highlights • This paper estimates the employment effects of the 2009 Recovery Act via instrumental variables. • We use exogenous variation in states' budget positions and Recovery Act highway funding. • ARRA spending increased government employment by between 156,000 and 563,000 jobs (90% CI). • The private-sector impact was between a loss of 180,000 and a gain of 1.1 million jobs (90% CI). • Our point estimate for the Act's implied cost of creating a job lasting one year is $202,000. Abstract This paper estimates the private and government sector employment effects of American Recovery and Reinvestment Act (ARRA) spending via an instrumental variables strategy. We argue that this aid was effectively fungible and states used it to offset declines in revenue. This enables us to use exogenous variation in states’ budget positions to identify the Act's employment effects. We also exploit exogenous variation across states in ARRA highway funding. According to our benchmark estimates, average state and local government employment, during the 24 months following the program's inception, was between 156,000 and 563,000 persons greater as a result of ARRA spending (90% confidence interval). The corresponding estimate for the private sector ranges from a loss of 182,000 to a gain of 1.1 million jobs. Our point estimate for the implied cost of creating a job lasting one year is $202,000, which is substantially larger than the corresponding estimate from the President's Council of Economic Advisors.

KEYWORDS

SHARE & LIKE

COMMENTS

ABOUT THE AUTHOR

Journal of Monetary Economics

The Journal of Monetary Economics is a peer-reviewed academic journal covering research on macroeconomics and monetary economics. It is published by Elsevier and was established in October 1973 by Karl Brunner and Charles I. Plosser.

0 Following 0 Fans 0 Projects 39 Articles

SIMILAR ARTICLES

Highlights • Friedman rule assumes a source of finance: lump-sum taxation. • Lump-sum taxes are like a debt obligation. • If people are permitted to

Read More

Highlights • We link the boom that preceded the "Great Recession" and the eventual bust together. • Expected gains from financial innovations may hav

Read More

Highlights • Endogenous investment booms and busts arise in a rational expectations framework. • Aggregate distortions exist despite the design of op

Read More

Highlights • An economy where defaulters lose collateral and exclusion occurs probabilistically. • A higher exclusion probability implies better enfo

Read More

Highlights • The regional availability of bond and bank financing induces debt inflexibility. • Inflexibility limits the firm's ability to replace ba

Read More

Highlights • We study economic growth through eliminating rather than augmenting non-reproducible factors. • We obtain the balanced growth path and c

Read More

Highlights • This paper shows that investor sentiment helps account for the forward premium puzzle. • The same mechanism helps account for other styl

Read More

Highlights • Macro model with banks. • Bank runs and endogenous bank capital. • Risk taking channel. • Endogenous risk formation. • Optimal an

Read More

Highlights • Government investment in public capital forecasts high risk premiums. • Result is in contrast with negative link between private invest

Read More

Highlights • We propose two system-based identification-robust methods for DSGE models. • Valid under weak identification and auxiliary assumptions

Read More