Wilson’s study makes an important contribution to this debate by focusing on state-by-state comparisons. A large portion of stimulus funding at the state level was based on criteria that were entirely independent of the economic situation that states faced. For example, the number of existing highway miles was used to calculate additional transportation spending.
The study uses this resulting variation in state-level stimulus funding to determine what impact ARRA funding had on employment — including both the direct impact of workers hired to complete planned projects, as well as any broader spillover effects resulting from greater government spending. Administration economists have repeatedly emphasized the importance of this indirect employment growth in driving economic recovery.
The results suggest that though the program did result in 2 million jobs “created or saved” by March 2010, net job creation was statistically indistinguishable from zero by August of this year. Taken at face value, this would suggest that the stimulus program (with an overall cost of $814 billion) worked only to generate temporary jobs at a cost of over $400,000 per worker. Even if the stimulus had in fact generated this level of employment as a durable outcome, it would still have been an extremely expensive way to generate employment.
Interestingly, federal assistance to state Medicaid programs appears to have decreased local and state government employment. One possibility is that requirements to maintain full Medicaid benefits in order to receive federal aid proved sufficiently expensive that state governments pushed though additional rounds of layoffs in non-health related areas. This finding may suggest a potential pitfall with the Wyden-Brown proposal to decentralize health reform efforts at the state level: if comprehensive insurance requirements are retained, the net effect of reform may only shift safety-net spending towards healthcare and away from other urgent priorities such as education or welfare assistance.
Backers of the stimulus have always had to contend with two big problems: The first is measurement. How do we know how many jobs were created, saved, funded, whatever? Do we count new permanent jobs, or partially funded contractors, or grocery clerks whose paychecks are dependent on added business from stimulus-funded workers across town? And even if you can verify that those jobs are funded by stimulus money somehow, how do you know that the same jobs would not have been created in the absence of the stimulus? It’s a thankless task, and the administration has tended to respond by skirting the issue and relying on models that don’t really measure output at all. Wilson’s study, with its state-by-state comparisons, attempts to partly address this problem.
But his tentative conclusions lead to the second problem, which is value. Even if you find that the stimulus did create jobs, then the question becomes: Were the results worth the price? The findings in Wilson’s study suggest that they weren’t.