In response to a rapidly deteriorating economy, Congress in February passed and President Obama signed the American Recovery and Reinvestment Act of 2009, which put in place a number of measures designed to save and create millions of jobs. These included tax cuts to individuals and businesses, aid to states, supports for struggling families, and direct investments in national infrastructure.
The act also put in place transparency and accountability measures mandating that recipients of federal funding report on the number of jobs that are created or saved by these investments. On October 15, the government’s main outlet for Recovery Act job information, Recovery.gov, will begin to report on the number of jobs created by recipients of Recovery Act funding.
Many will be tempted to use the recipient data as a tool to evaluate the effectiveness of the recovery act as a whole, but a number of considerations should be kept in mind when using this limited data on jobs. In particular, the recipient-level data made available through the Recovery.gov site, while exceptionally valuable, will never reveal the full monty.
This first wave of reports will represent only $6-12 billion of contract awards, just 3.4% of the Recovery Act expenditures to date. While Recovery.gov will continue to post recipient reports tracking the jobs created through stimulus spending, there will be many more jobs supported, and in a more geographically diverse area, than the recipient-level data will suggest, for these reasons:
—Grant, contract, and loan data are only part of Recovery Act funding. The recipient-level data will include reports from recipients of contracts, grants, and loans, representing only part of the overall recovery package. For example, tax reductions, increased unemployment insurance payments, greater nutritional assistance, and much of the assistance to state governments will not be included in the recipient-level jobs data. So far, these other sources of funding have far exceeded the outlays resulting in contracts, grants, or loans. The initial wave of data released on October 15th will include just contractor data, while data on grants and loans made under the Recovery Act will begin to be released later in October.
—Not all recipients are required to report. Reporting is currently limited to “prime” recipients and the first level of sub-recipients. For contracts directly awarded to private companies, for example, second-level sub-contractors will not be required to report. (Prime and next-tier recipients may report estimated jobs created by subsequent sub-contractors, but no direct reporting is required by the lower-tier companies.)
—Only direct employees will be recorded. Recovery.gov’s recipient-level reports will only include the jobs created directly by the recipient. For example, a new construction worker hired to install a new roof will be included, but other factors will be omitted, including:
a) “Respending” jobs. Data will not include the jobs saved or created by that construction worker’s new spending, such as the car repairs or restaurant dining that results from their additional income.
b) “Upstream” jobs. Data will not include the jobs created at the companies that manufacture, transport, and sell roofing supplies at the retail or wholesale level. Recovery Act investments will increase demand for business supplies and services, leading to greater employment in sectors that support the direct activity. However, these jobs will also not be included in recipient-level reporting.
—Only a fraction of the money available has been allocated to date. The funding for grant and contract work has only just begun to ramp up. Funding for the direct investments is expected to have a much greater impact later this year and through 2010. For example, the Department of Transportation has paid out just $3.65 billion of $48.1 billion of their Recovery Act funds.
—Geographic information in the Recovery.org data is not a good guide to the full impact. Project locations will only be a rough guide to the area impacted by the funding. While work might occur in a particular location, the investment dollars will have much broader impact. In particular, employees might reside in locations other than where the work is performed. In addition, re-spending and supplier jobs will almost certainly be dispersed widely across the region or nation.
—Inconsistent methodologies are likely across reports. Early in the reporting process there will likely be a range of methodologies employed by recipients of Recovery Act funds. The Office of Management and Budget has provided some guidance on reporting, but there will almost certainly be numerous instinces of unclear or misinterpreted instructions resulting in mis-measurement across reporting entities. This is especially true when estimating the number of jobs “saved” by the Recovery Act.
Because of these limitations of recipient-level reporting, the jobs data included in the recipient reports should not be interpreted as a full measure of the impact of the Recovery Act.
Broader economic evidence suggests that the recovery package is having a significant impact. Job losses have decelerated since the start of the year and gross domestic product (GDP) is expected to return to positive territory in the third quarter of this year. Using a methodology more suited to capture the full impact of the Recovery Act—including tax cuts, aid to states, and direct investments (including re-spending and upstream supplier jobs)—the number of jobs created or saved so far is likely between 1 and 1.5 million.
Despite the success of the recovery package so far, the economy still faces high and rising unemployment. This is due to the massive size of the downturn that began in December 2007 and accelerated late last year. Action to directly address further job loss and unemployment is needed to prevent continuing high levels of unemployment.