How To Measure Job Creation

Filed under Jobs, by Peter Elstrom on May 14

President Obama has set high expectations for the creation of new jobs from his $787 billion stimulus plan. As U. S. companies have shed millions of positions, Obama has said that he hopes the program will result in three to four million new jobs.

But how will taxpayers know whether they’re getting their money’s worth? How will we know which jobs are created or saved by the stimulus program, as opposed to the hiring that employers do on their own? The Council of Economic Advisers just released its explanation of how it will keep track for the Administration.

The release begins by laying out what the Administration expects in the next few years. Here's a quick summary in table form:

Estimates of Jobs Saved or Created by the ARRA of 2009 at Different Times
As of the 4th Quarter of
2009 1.5 million
2010 3.5 million
2011 1.7 million
2012 0.3 million

Average for the Year
2009 0.7 million
2010 3.0 million
2011 2.5 million
2012 0.7 million

It also makes some interesting assumptions about what it costs to create new jobs. Clearly, this is more art than science. But much is riding on these calculations. Here's the info:

Estimates of Spending Needed to Create 1 Job-Year for Different Types of Fiscal Stimulus
Government spending: $92,136 per job-year
Tax cuts: $145,351 per job-year
State fiscal relief: $116,603 per job-year

So how will we know whether the government is getting the kind of job creation it expects? The CEA will report its jobs estimates to Congress every quarter, with the first report due in August. The council will get its figures from the departments that receive stimulus money. The CEA warns up front that these figures will be estimates by the departments and there will certainly be some errors in them. However, the CEA and the OMB will check the estimates as they come in:

This process will involve numerous steps, including:

--Comparing reports of similar projects in different locations to identify obvious outliers.

--Comparing recipient reports to other labor market indicators for the area.

--Comparing recipient reports of job creation with estimates of expenditures and local wage rates to test for consistency.

Bottom line: We'll get regular reports from the government on the number of jobs that officials think the stimulus money is paying for. But the figures will be a pretty rough, even if they're prepared with complete objectivity and the best intentions.

And if we give government officials nearly $800 billion to create four million jobs, they will be able to measure their own progress objectively, right?