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More Workers Are Dropping Tools Than Picking Them Up

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Now that the federal stimulus investment from the American Recovery and Reinvestment Act (ARRA) is well under way, it is time to begin sharply scrutinizing the return on the investment in terms of jobs created. That may be more difficult than it sounds because of the multifaceted approach under the law. It combines infrastructure investment and other direct federal spending with individual income-tax cuts, a two-year patch to the alternative minimum tax, investment incentives, aid to people directly hurt by the recession and state fiscal relief.

More Workers Are Dropping Tools Than Picking Them Up
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A May 11 report by President Obama’s Council of Economic Advisers sheds little light on the complex issue. The puny 12-page report shows the council clinging to initial employment estimates from February, when the law was adopted. It says ARRA will increase employment by 3.5 million by the fourth quarter of 2010 by creating or saving jobs. According to CEA, a “simple rule” for judging ARRA’s impact is that $92,000 of government spending creates one job-year, with 64% of the job-years representing direct and indirect spending effects and 36% induced.

ARRA requires the council to report to Congress on the employment effects of the act each quarter, and the first report is due in August. The interim view is overly optimistic as employment continues to erode despite the $787-billion investment. Unanticipated hundreds of thousands of jobs have been lost in almost every month since February.

Since the recession began in December 2007, 5.7 million jobs have been lost, according to the Bureau of Labor Statistics in a May 8 report. National unemployment moved up from 8.5% in March to 8.9% in April.

Ironically, the 539,000 jobs lost in April in all industries was viewed by some in government as an improvement because the total was less than the 600,000 predicted and the 699,000 jobs lost in March. Still, construction was hit hard, with 110,000 workers laying down their tools in April, says BLS. Over the past six months, job losses averaged 120,000 per month, compared with a 46,000 monthly average from December 2007 though October 2008.

Those numbers dwarf an estimate from the House Transportation and Infrastructure Committee that indicates only 1,288 direct on-project jobs were created or maintained as of March 31 through highway, transit and wastewater-treatment funding from ARRA. It still is very early in the stimulus program, but the rate of job creation so far shows a slack return on investment for construction.

 

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