Did the stimulus create jobs?
Daniel Wilson of the San Francisco Federal Reserve Bank has just released what might be the first real evidence-based effort to resolve this question. One apparent problem with drawing inferences from the experience of the past couple years is that we have only one experiment to look at. But Wilson points out that in some sense, we have 50 separate experiments because stimulus spending differed substantially across states. You can potentially learn a lot from 50 experiments.
Unfortunately, they’re not controlled experiments, because stimulus funds were not allocated randomly. States with particularly weak economies probably got more Medicaid funds. States with bloated and inefficient bureaucracies might have been slow to complete necessary paperwork and hence slow to receive funds. If those weak economies or shamblng bureaucrats also had an effect on job growth, then the experiments are not clean.
But fortunately there are substantial components of the funds that were distributed according to objective formulas (demographics, number of highway miles, and so forth). Wilson makes competent use of these components, together with standard econometric techniques, to zero in on the subset of stimulus spending that can be considered effectively random. Now that he’s got his fifty more-or-less controlled experiments, he also controls for other confounding variables that could plausibly affect state-by-state economic growth. All of which is the right way to do this.
As Wilson points out, his appears to be the first attempt along these lines. Previous studies fall into two broad categories. First, there are the model-based approaches that forecast employment both with and without the stimulus (so that they’re testing not the observed effects of the stimulus, but its forecasted effects). Second, there are the survey-based approaches that require recipients of stimulus money to report the number of jobs they created or saved. Aside from all the obvious ways in such reports are likely to be inaccurate, they account only for the first-round effects of the stimulus, ignoring any second-round jobs created, ignoring effects on consumer spending, and ignoring God knows what else.
Wilson’s bottom lines:
- The number of jobs created or saved by the spending is about 2.0 million as of March, but drops to near zero as of August.
- The effects varied enormously among sectors. The biggest impact was in construction, where we saw a 23% increase in employment (as of August 2010) relative to what it would have been without the stimulus.
- It mattered a lot how the money was spent. Spending on infrastructure and other general purposes had a large positive impact
- Aid to state government to support Medicaid may have actually reduced state and local government employment. This seems a little surprising. It might be driven by the fact that these funds come with strings attached, requiring state and local governments to meet so many burdens that they’re led to cut spending and employment in non-Medicaid areas.
None of this will give unmitigated aid and comfort to ideologues of any stripe. And none of it is definitive, because no single study is ever definitive. But it’s a welcome start toward figuring out what really happened over the past couple of years.
I will add only that “Did the stimulus create jobs?” is not at all the same question as “Was the stimulus a good idea?”. But it’s an important question in its own right, and I’m glad someone’s finally trying to answer it in a sensible way.