Did Stimulus Dollars Hire the Unemployed?

To test the effect of job incentives included in the 2009 American Recovery and Reinvestment Act (AARA), or stimulus package, researchers at the Marcatus Center conducted a survey of hundreds of firms, non-profit institutes and local governments to gather information on worker and employer behaviour in response to certain provisions. The findings include both predictable and surprising observations:

Just 42.1 per cent of the workers hired at ARRA-receiving organisations after January 31, 2009, were unemployed at the time they were hired.

More were hired directly from other organisations (47.3 per cent of post-ARRA workers), while a handful came from school (6.5 per cent) or from outside the labour force (4.1 per cent).

Only about half (47 per cent) of responding ARRA-receiving organisations said it was easier to hire high-quality workers than before the financial crisis.

The rest said hiring good people was either as hard as (41 per cent) or harder than (12 per cent) before the financial crisis of 2008.

Another interesting finding of the study involves the 1931 law that requires government contractors to pay union-scale wages on most federal projects, known as the Davis-Bacon prevailing wage standard. The stimulus package required this scale be used for 40 new types of projects. According to the report:

The median respondent who reported Davis-Bacon wages were above the market level said that Davis-Bacon wages were 13.3 per cent higher than market wages.

Six per cent more workers could have been hired on Davis-Bacon projects, and more roads could have been repaved, more houses insulated and more levees repaired if ARRA-receiving organisations could have paid market wages.

A suspension of Davis-Bacon would perhaps have created 55,000 additional federally funded jobs.

The study ultimately concludes that attempts to target and stimulate certain industries through government spending are less effective than one might expect. Too little attention was paid to the short-run effects of spending on hiring decisions, leaving much to be desired in some of the legislation.

Source: Garett Jones and Daniel M. Rothschild, Did Stimulus Dollars Hire the Unemployed? Answers to Questions about the American Recovery and Reinvestment Act, Mercatus Center, September 2011.

For text: http://mercatus.org/sites/default/files/publication/Did_Stimulus_Dollars_Hire_The_Unemployed_Jones_Rothschild_WP34.pdf

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 22 September 2011