Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output

February 23, 2010

Under the American Recovery and Reinvestment Act of 2009 (ARRA), also known as the economic stimulus package, certain recipients of funds appropriated in ARRA (most grant and loan recipients, contractors, and subcontractors) are required to report the number of jobs they created or retained with ARRA funding after the end of each calendar quarter. The law also requires CBO to comment on those reported numbers. Today CBO released a report to satisfy that requirement.

CBOs Estimates of ARRAs Impact on Employment and Economic Output

Looking at recorded spending to date as well as estimates of the other effects of ARRA on spending and revenues, CBO has estimated the laws impact on employment and economic output using evidence about how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the fourth quarter of calendar year 2009, ARRA added between 1.0 million and 2.1 million to the number of workers employed in the United States, and it increased the number of full-time-equivalent (FTE) jobs by between 1.4 million and 3.0 million. Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers. CBO also estimates that real (inflation-adjusted) gross domestic product (GDP) was 1.5 percent to 3.5 percent higher in the fourth quarter than would have been the case in the absence of ARRA.

Data on actual output and employment during the period since ARRAs enactment are not as helpful in determining ARRAs economic effects as might be supposed, because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRAs impact. Economic output and employment in 2009 were lower than CBO had projected at the time of enactment. But in CBOs judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.

Limitations of Recipients Estimates

CBOs estimates differ substantially from the reports filed by recipients of ARRA funding. Those recipients reported that ARRA funded nearly 600,000 fulltime-equivalent (FTE) jobs during the fourth quarter of 2009. Such reports, however, do not provide a comprehensive estimate of the laws impact on employment in the United States. That impact may be higher or lower than the reported number for several reasons (in addition to any issues about the quality of the data in the reports):

  • Some of the reported jobs might have existed in the absence of the stimulus package, with employees working on the same activities or other activities.
  • The reports filed by recipients measure only the jobs created by employers who received ARRA funding directly or by their immediate subcontractors (so-called primary and secondary recipients), not by lower-level subcontractors.
  • The reports do not attempt to measure the number of jobs that may have been created or retained indirectly as greater income for recipients and their employees boosted demand for products and services.
  • The recipients reports cover only certain appropriations made in ARRA, which encompass about one-fifth of the total amount spent by the government or conveyed through tax reductions in ARRA during the fourth quarter; the reports do not measure the effects of other provisions of the stimulus package, such as tax cuts and transfer payments (including unemployment insurance payments) to individuals.

Consequently, estimating the laws overall effects on employment requires a more comprehensive analysis than the recipients reports provide.