August 24, 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 funded through ARRA after the end of each calendar quarter. The law also requires CBO to comment on those reported numbers. A CBO report released this afternoon satisfies that requirement and under the law is required to be submitted no later than today. The report provides CBOs estimates of ARRAs overall impact on employment and economic output in the second quarter of calendar year 2010. The most recent estimates for the second quarter and beyond vary only slightly from those in our quarterly ARRA report released in May.
When ARRA was being considered, CBO and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019. CBO now estimates that the total impact over the 20092019 period will amount to $814 billion. Close to half of that impact is estimated to occur in fiscal year 2010, and about 70 percent of ARRAs budgetary impact will have been realized by the close of that fiscal year.
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 the effects of previous similar policies on the economy and using various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the second quarter of calendar year 2010, ARRAs policies:
- Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points,
- Increased the number of people employed by between 1.4 million and 3.3 million, and
- Increased the number of full-time-equivalent (FTE) jobs by 2.0 million to 4.8 million compared with what those amounts would have been otherwise. (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.)
The effects of ARRA on output and employment are expected to gradually diminish during the second half of 2010 and beyond. The effects of ARRA on employment and unemployment are expected to lag slightly behind the effects on output; they are expected to wane gradually in 2011 and beyond.
Although CBO has examined data on output and employment during the period since ARRAs enactment, those data 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.
Limitations of Recipients Estimates
CBOs estimates differ substantially from the reports filed by recipients of ARRA funding. Those recipients reported that ARRA funded nearly 750,000 FTE jobs during the second quarter of 2010. 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.
- The reports cover employers that received ARRA funding directly and those employers immediate subcontractors (the so-called primary and secondary recipients of ARRA funding) but not lower-level subcontractors.
- The reports do not attempt to measure the number of jobs that were created or retained indirectly as a result of recipients increased income, and the increased income of their employees, which could boost demand for other products and services as they spent their paychecks.
- The recipients reports cover only certain ARRA appropriations, which encompass about one-fifth of the total either spent by the government or conveyed through tax reductions in ARRA during the second 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 individual people.
Consequently, estimating the laws overall effects on employment requires a more comprehensive analysis than the recipients reports provide.
The report was prepared by Ben Page of CBOs Macroeconomic Analysis Division.