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

May 25, 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.

CBO’s Estimates of ARRA’s 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 law’s 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 first quarter of calendar year 2010, ARRA’s policies:

  • Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
  • Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
  • Increased the number of people employed by between 1.2 million and 2.8 million, and 
  • Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 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 increase further during calendar year 2010 but then diminish in 2011 and fade away by the end of 2012.

Data on actual output and employment during the period since ARRA’s enactment are not as helpful in determining ARRA’s economic effects as might be supposed, because isolating those effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, there is no way to be certain about how the economy would have performed if the legislation had not been enacted, and data on its actual performance add only limited information about ARRA’s impact.

Limitations of Recipients’ Estimates

CBO’s estimates differ substantially from the reports filed by recipients of ARRA funding. Those recipients reported that ARRA funded nearly 700,000 FTE jobs during the first quarter of 2010. Such reports, however, do not provide a comprehensive estimate of the law’s 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-sixth of the total amount spent by the government or conveyed through tax reductions in ARRA during the first 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 law’s overall effects on employment requires a more comprehensive analysis than the recipients’ reports provide.

The report was prepared by Ben Page of CBO’s Macroeconomic Analysis Division.