Stimulus

Stimulus Jobs Vanish!

The American Recovery and Reinvestment Act failed to create lasting employment.

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Sarah hated having to fire 18 employees at once, but she simply could not afford their salaries anymore. Her small business had received a $1.4 million grant under the American Recovery and Reinvestment Act (ARRA) to run a job training program in Arizona, a project that required her to hire those 18 workers up front to do the actual training. Once the stimulus project was completed, however, she had to let those workers go. Their jobs weren't sustainable past the grant, ironically putting her former employees in a position similar to that of the people they'd just finished training.

Stories like these are depressingly common, as we discovered in a recent Reason Foundation survey of businesses that received ARRA grants and contracts. Only 23 percent of the 8,381 companies we were able to contact in our sample hired new workers to complete their stimulus project and kept all of them once the project was done. In other words, more than seven out of 10 companies did not hire workers at all or had to lay off the workers they did hire.

The survey covered businesses that had completed stimulus projects in areas such as construction work, medicine, and education. The companies that responded were scattered across the country and ranged in size from a handful of workers to more than 500 employees, and were fully representative. We asked the stimulus recipients about their employment levels during different phases of the stimulus and whether they had to lay off workers once the stimulus money was spent.

Most estimates of "total jobs created or saved" are dubious, derived from models built on estimates of estimates. But estimating overall levels of employment is not a good way to understand how the stimulus affected unemployment. A company could have hired 10 workers for one day and claimed it created 10 jobs, even though the labor market was essentially unchanged.

This survey was the first of its kind: a broad collection of data from stimulus recipients about their employment practices in a standard format using telephone and email questionnaires. It allows us to view the stimulus from the perspective of the companies and thus gain a better understanding of how the stimulus interacted with the labor market.

We found that only 41 percent of the companies that received stimulus grants or contracts actually hired workers for the relevant project. The other 59 percent either hired no workers for the stimulus project or reduced their payrolls because they couldn't afford to retain all their staff even with the stimulus money coming in.

Within the 41 percent of companies that did hire workers, the survey found that 55 percent kept all their workers once the project was done. But 30 percent were, like Sarah's job training company, forced to lay off workers once the government money stopped flowing. Another 15 percent of companies hired workers but couldn't retain all of them. These findings suggest that ARRA did not create much lasting employment among firms that received grants or contracts for stimulus projects.  

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59 responses to “Stimulus Jobs Vanish!

  1. It allows us to view the stimulus from the perspective of the companies and thus gain a better understanding of how the stimulus interacted with the labor market.

    I think how the stimulus interacted with election polls is what was of more interest.

    1. Stock market performance is disconnected from economic reality in the same way that election results are disconnected from the reality of public disapproval of the government.

      1. Stock market performance is connected to reality, just not in the way that people think. It can mean the economy is doing well. But it can also be the result of the Federal Reserve and the Federal government dumping trillions of dollars into the financial sector.

        1. Don’t try and comment on finance. I am far superior when discussing this topic than any of you lowly reason.com scum!

          /shreeky

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      2. election results are disconnected from the reality of public disapproval of the government.

        It’s too bad there has to be a winner in an election. I suppose the next best thing is to kick out the incumbent.

  2. There is a dude that clearly knows what time it is. Wow.

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  3. Obviously, the stimulus should have been bigger and should go on indefinitely. [/statist]

    1. The problem is that not every nation took part in the stimulus. How is one country to begin this moral action when most other nations continue to run immorally on the basis of the citizen ability and not the voter citizens needs?

      The only solution is a world wide stimulus! If all nations took part in putting a voters citizens needs before his/her ability, it would have worked!

      [/statist]

    2. Doctor Whom| 4.16.13 @ 10:48AM |#
      “Obviously, the stimulus should have been bigger and should go on indefinitely. [/statist]”

      This was over in 24/7 earlier, but most of the H&R folks never get there:
      “A Jaw-Dropping Subsidy for the Biggest Banks”
      “the interest that the Federal Reserve pays on the reserves that banks keep at the central bank, an amount that could top $77 billion each year by the end of 2015,”

      Read more: http://www.sfgate.com/business…..z2Qgg2ynpR

      Pretty big and pretty permanent already.

  4. “Only 23 percent of the 8,381 companies we were able to contact in our sample hired new workers to complete their stimulus project and kept all of them once the project was done.”

    If consumers were free to keep that $831 billion out of their own future paychecks, surely they would have created more sustainable jobs than that–“sustainable” being the operative word.

    1. I’m now convinced that the regulatory noose has gotten to a point where no amount of “allowing people to keep and spend their own money” will fix the economy.

      Since you can’t do anything productive without first asking permission and taking orders from some government idiot, most people don’t bother.

      This is the logical conclusion of a system where the response to the consequences of bad rules is not to repeal the bad rules, but to make more.

      1. You are exactly right. Taxes suck but there are countries out there with worse taxes. And there have been times in this country’s history when they have been worse. It is the regulatory state that is killing us more than anything.

        And what is both pathetic and funny is that the regulatory state is as much as anything what made the stimulus so ineffective. Thanks to the liberal desire to control everything and make sure it is impossible to build anything, there are no “shovel ready projects”. All the stimulus did was pay off the unions and prop up state and local governments. It built very little. And that would have been true no matter how big the stimulus was.

        1. There were shovel ready projects though. As best as I can tell, any project that was either near completion, or very recently completed was considered “shovel ready”. For instance, the 710 Freeway out here had gone through two years of reconstruction. ARRA passes, and they tear up the brand new construction and start to rebuild it for the next three years.

          I know it sounds conspiratorial, but I think ARRA just went to projects that already had EIR’s, permits, and construction plans in place. Some projects were recently completed. Other projects were near completion, or in process. The funds were used to destroy recently completed or partially completed projects, then used to rebuild them.

          1. That is not conspiratorial at all. That makes perfect sense. Getting permits and EIRs is a bitch. If you are a government bureaucrat and told to spend money now, the way to do it is to speed up projects that are already approved. I have no doubt that is exactly how it worked.

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          2. Didn’t Reason run stories showing that much of the stimulus went to keep state workers on the payroll?

            If the stimulus went to the very least productive part of our economy possible, just to keep government workers on state payrolls for longer than they would have been otherwise, then the stimulus was actually counterproductive…becasue it means all that counterproductive government employee activity was perpetuated, too.

            This is one of my issues with focusing on unemployment as a primary economic problem. If you convince people that producing low unemployment is the primary purpose of economic policy, then how do you justify laying off all the dead weight we have working for the government in this country?

            If laying off all those government workers needs to happen in order for the economy to perform the way it should, and the unemployment rate needs to go up to 12% or so in order to accomplish that? Then I hope the unemployment rate goes up to 12% tomorrow!

            Here’s where the $23 billion in stimulus that went to California was spent:

            http://stimuluswatch.org/project/by_state/CA

            Look at those projects! Those projects look like they’re there to keep CalTrans and other state workers employed while the state doesn’t have the money to pay them. Is California better off for keeping its over-staffed and overpaid state workers on the books?

            Hell no!

            1. Look at those projects: looks like it’s mostly “street/roads”, “energy”, “transit”, “schools”, “water”.

              Coincidentally, things that government employees have a lot to do with.

            2. The stimulus was used to pay off Dem contributors. In fairness, I don’t think the Obama people were malevolent. They are just that stupid. They honestly thought paying states to keep workers on the pay roll would help the economy.

              1. They thought unemployed people might vote against him when he stood for reelection.

            3. So the Stimulus funded government workers that make and enforce regulations. How could that not grow the economy?

            4. There ya go. The massive squander was highlighted by perpetuating unionized government workers who lean on shovels across America, literally and figuratively, in mass and occupy positions simply unaffordable by taxpayers, among many other incompetent failures.

              Will another toilet flush of billions come next?

              What choice do Keynesians have?

              1. What choice do Keynesians have?

                They can always blame Reagan.

      2. and driving parts of the economy further underground.

        1. Serious question. Other than the obvious example of drugs, what parts of the economy do you think are being driven underground by regulation?

          1. Farming.

            Things like tobacco harvests are done with off the books, generally illegal immigrant, employment.

          2. Lots of work requiring licenses and permits to be done legally is I’m sure being done under the table.

            1. For sure. But that is local regulations. I was thinking more federal regs.

              1. I was thinking cumulative, as in local, state and federal.

                If you want to Tulpafy the goalposts, that’s fine.

                1. I am not Tulpafying anything. I just don’t think entire industries get run underground outside of drugs. I think instead, a lot of individual commerce gets run underground. For example, lots of licensed and above board contractors barter jobs as a way to avoid income taxes. Hey you come over and wire up that room I just built on my house and in return I will do your taxes this year. That kind of thing.

                  1. I just don’t think entire industries get run underground outside of drugs.

                    No one said anything about “entire industries.” You’re Tulpafying.

                    I think instead, a lot of individual commerce gets run underground.

                    Exactly. To the point where that “individual commerce” can add up to “driving parts of the economy further underground.”

                    Maybe you’re looking for examples of organized business, or industry, being driven underground. That’s not what I meant. I meant individuals engaging in economic activity without any respect for the law.

                    A sad effect of having so many laws not worthy of respect is that it has the effect of people treating all laws as not being worthy of respect.

                  2. I think keeping immigrants illegal may drive some whole industries underground.

                    Farm produce is big business in California, but small, specialty farms that do everything from organic berry farms in Ojai to small time Avocado groves in Fallbrook to specialty grape growers in Sonoma, I bet they’re all trying to dodge both the INS and and United Farmworkers.

                    In the landscaping business in Southern California, I bet the only legal workers are the ones driving the trucks–the ones in the passenger seat or in the back are almost all illegal. It doesn’t matter what kind of food you’re talking about, Indonesian, Filipino, Italian, whatever–if you’re eating in a restaurant in LA, you’re eating food prepared by Mexicans or Central Americans. …either that or you’re eating Chinese food–and the cooks in the back of that joint have probably overstayed their tourist visas, too!

      3. “Since you can’t do anything productive without first asking permission and taking orders from some government idiot, most people don’t bother.”

        I disagree.

        And I’m not talking about the investment side of this–consumers buying smart phones and other consumer goods does more to drive sustainable economic growth than stimulus. …and there aren’t any regulations against buying smart phones.

        People making economic choices for themselves with their discretionary income will always outperform politicians making choices about how to spend taxpayer money on stimulus. That’s all I’m trying to say.

        If American consumers had $831 billion more in discretionary income over the next 10 years–instead of having to cover or roll over that much in treasuries because of the stimulus–whatever they would have spent it on would have been economically productive and more sustainable.

        That’s the definition of economically sustainable to me. If an economic endeavor can’t be sustained by consumers who pay for it willingly, then it isn’t sustainable. So, anything they spend their money on willingly is by definition more sustainable than what politicians fund through stimulus.

        1. Exactly. Stimulus programs only ever work if you are in a liquidity trap. But when you have a multi trillion dollar government and the huge number of transfer programs that we have, we will never be in a liquidity trap. That is what the Keynesians refuse to admit. It is not 1928. We have tons of programs that move money around and ensure there will never again be a liquidity trap. For that reason, we don’t have demand driven recessions anymore. We have bubble driven and debt driven ones. 2008 was a debt driven recession. So they handed out all of that money and people just paid off their debts instead of spending it. Add to that the economic uncertainty created by electing the village idiot President and anyone who didn’t have debt to pay down just saved the money for the anticipated rainy days.

        2. People making economic choices for themselves with their discretionary income will always outperform politicians making choices about how to spend taxpayer money on stimulus. That’s all I’m trying to say.

          I agree. But on the other hand I don’t think it would be enough to get the unemployed into jobs. Unless there is some serious rollback of rules preventing economic activity, you’re looking at the new normal.

          1. Yup. This has been the normal in Europe for decades. This is what socialist corporatist government produces.

          2. I think we may have a serious mismatch in terms of what skills are needed to be well employed these days–and what skills people have. There was a great story on “This American Life” recently about how disability is now a program for people whose employment runs out. For a lot of older people, the skills they were taught just aren’t really that marketable. And for someone in their late 40s or 50s, if you don’t have those skills now, and you weren’t using them on the job recently, they’re gonna have a hard time getting hired–even if they acquired the skills.

            If we slashed the income tax, made it less expensive to hire unemployed people, that would make hiring the unemployed easier. If ObamaCare didn’t fine small businesses and such, that would help, too. But even if we took care of all of that, the unemployed still need the skills to do the job, and I’m not sure the people who are still unemployed out there have them.

            So, I think there are a lot of people who aren’t willing to take the jobs that are available and who aren’t qualified anymore for the jobs they’ll take.

            The regulation is hurting them, but there’s more to it than that. For a lot of them, on unemployment or disability, they won’t get a job until they have no other choice, and right now, the government is giving them something better than what they can find on the job market. Like someone whose house has been foreclosed on, they won’t move until they have no choice.

            1. The education piece aside. Some of this boils down to allowing business a liberty rich environment with the freedom and flexibility to take and assess their risk. The opposite of capital gains, taxes, regulation (obamacare), fiat currency, etc. It’s no one thing, its employment death by a thousand cuts.

              1. Yes! More freedom for business to be more flexible in all sorts of ways makes a lot of those problems go away.

                But!

                My grandmother died a while back, and she was 95 years old–sharp as a tack! Never lost a single iota of smarts. She had been the head nurse in a delivery room in a major hospital. She was an extremely well educated woman in her time.

                She seemed to get email–when you discussed it with her, but she’d much rather print it out and mail it to you. We tried to set her up with instant messaging–this was more than ten years ago. …but she just couldn’t get the concept that what she was typing was being seen by me in real time–and what came back to her was from me in real time.

                I don’t think a lot of us, who are relatively tech savvy, really consider who we’re talking about, sometimes, when we talk about these people who are unemployed. Take a city bus across town one weekday and look at the other people on the bus. Try to imagine you, or your company, or your personnel director hiring one of them–and try to imagine what you would hire them for.

                My grandmother grew up in world where horse and buggy was the norm. She lived long enough to watch television, get on a commercial airplane, and fly to China. But she couldn’t get her head around instant messaging. I think people like that are way over represented among the unemployed. There must be people out there who simply aren’t employable anymore.

                I guess it happens to most of us eventually.

            2. The barriers to people going into business for themselves will make sure that these people will stay unemployed.

              1. Absolutely.

                But I have seen former city planners decide they were going to go into business for themselves as developers.

                It always ends in tears.

      4. *Addendum*

        “People making economic choices for themselves with their discretionary income will always outperform politicians making choices about how to spend taxpayer money on stimulus.”

        Even in a liquidity trap!

        At the time the stimulus was approved, the banks were so starved for deposits, they were giving people hundreds of dollars just to open a checking account.

        At a time when the banks were starved for deposits becasue they didn’t have enough deposits to justify the outstanding loans on their books that had gone bad–here’s the government using stimulus trying to fight consumers’ marginal propensity to save?!

        At a time when the FDIC is seizing banks like Washington Mutual, because they don’t have enough deposits to cover their loan ratio, here’s the government using stimulus to fight consumers’ marginal propensity to save?!

        1. And of course the whole concept of a liquidity trap is bullshit. Prices and demand both have a nonzero boundary. No matter how bad the economy gets, prices will never reach zero, unemployment will never reach 100%. Eventually prices will get so low, even the biggest saver will start to spend again. And once that happens the liquidity trap unwinds itself.

  5. Shocked face. O_O

  6. “Within the 41 percent of companies that did hire workers, the survey found that 55 percent kept all their workers once the project was done. But 30 percent were, like Sarah’s job training company, forced to lay off workers once the government money stopped flowing. Another 15 percent of companies hired workers but couldn’t retain all of them. These findings suggest that ARRA did not create much lasting employment among firms that received grants or contracts for stimulus projects. “

    Depending on exactly how the survey was worded it may be worse than this as some of those companies could have hired in newer workers at the lower end of the payscale for that field and then when it came time to layoff laid off the older higher payscale folks meaning a net drop in payroll larger than the total job losses

  7. We found that only 41 percent of the companies that received stimulus grants or contracts actually hired workers for the relevant project. The other 59 percent either hired no workers for the stimulus project or reduced their payrolls because they couldn’t afford to retain all their staff even with the stimulus money coming in.

    Noooooo….really? People just took the government freebies without jumping through the .gov hoops and without repercussions?

    That’s unpossible!

  8. The rational, thoughtful types always fall prey to discussion of minutia, hoping to make sense, economic or otherwise, of a transfer of wealth dressed up as a jobs bill. This massive squander was designed to fail long term just like the fraudulent health care nightmare on our doorstep.

    Yes, only loss, suffering and turmoil have been sought by Barry, in keeping with a lifetime of absurd, assinine economic policies preached to him which, frankly, I’m not sure he really understands or cares. He is lazy after all, evidenced by remaining in casual campaign mode instead of leading like a competent, wise man. That would be too much like work.

    Barry has always used others to get his way and whatever he wants so why change now?

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  16. Well, yeah…..but it would have been much worse *without* the stimulus. And no it doesn’t matter no one can prove this.

  17. companies we were able to contact in our sample hired new

  18. 500 employees, and were fully representative. We asked

  19. common, as we discovered in a recent Reason Foundation

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