CBO

FEBRUARY 2015

Estimated Impact of the 

American Recovery and Reinvestment Act on 

Employment and Economic Output in 2014

In February 2009, in response to significant weakness in 

the economy, lawmakers enacted the American Recovery 

and Reinvestment Act (ARRA). The legislation’s numerous spending and revenue provisions can be grouped into 

several categories according to their focus:

 Providing funds to states and localities—for example, 

by raising federal matching rates under Medicaid, 

providing aid for education, and increasing financial 

support for some transportation projects;

 Supporting people in need—such as by extending and 

expanding unemployment benefits and increasing 

benefits under the Supplemental Nutrition Assistance 

Program (formerly the Food Stamp program);

 Purchasing goods and services—for instance, by 

funding construction and other investment activities 

that could take several years to complete; and

 Providing temporary tax relief for individuals and 

businesses—such as by raising exemption amounts for 

the alternative minimum tax, adding a new Making 

Work Pay tax credit, and creating enhanced 

deductions for depreciation of business equipment.

When ARRA was being considered, the Congressional 

Budget Office 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 2009–

2019 period will amount to nearly $840 billion (Table 1). 

By CBO’s estimate, close to half of that impact occurred 

in fiscal year 2010, and more than 95 percent of ARRA’s 

budgetary impact was realized by the end of December 

2014.

Various recipients of ARRA funds (most recipients of 

grants and loans, contractors, and subcontractors) were 

required to report the number of jobs funded through 

ARRA after the end of each calendar quarter through 

December 2013.1

 The law also requires CBO to comment on those reported numbers.2

During calendar year 2013 recipients reported that 

ARRA funded an average of about 76,000 full-timeequivalent (FTE) jobs.3

 Those reports, however, do not 

provide a comprehensive estimate of the law’s impact on

1. The last quarterly reports were submitted in January 2014. See the 

Recovery Accountability and Transparency Board, “Recipient 

Reporting” (accessed February 17, 2015), http://go.usa.gov/

3qSYC.

2. Sections 1512(c) and 1512(e) of the American Recovery and 

Reinvestment Act of 2009, Public Law 111-5, 123 Stat. 115, 

287–288. This report is the 16th in CBO’s series of reports. 

Public Law 112-204, enacted on December 4, 2012, reduced the 

required frequency of CBO’s reporting from quarterly to annually 

over the 2013–2015 period and eliminated the reporting requirement altogether after 2015. For the previous report, see Congressional Budget Office, Estimated Impact of the American Recovery 

and Reinvestment Act on Employment and Economic Output in 

2013 (February 2014), www.cbo.gov/publication/45122.

3. Data compiled from recipients’ reports (on jobs funded and other 

information) are shown at www.recovery.gov/arra/. Recipients 

were asked to calculate FTEs by taking the total number of hours 

worked in a quarter that were funded by ARRA and dividing the 

total by the number of hours that a full-time employee would 

have worked in that quarter. The last required quarterly reports 

covered the fourth quarter of 2013. See www.recovery.gov/arra/

FAQ/Pages/RecipientReporting.aspx.
2 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 FEBRUARY 2015

CBO

Table 1.

Estimated Budgetary Effects of the American Recovery and Reinvestment Act of 2009

Billions of Dollars, by Fiscal Year

Sources: Congressional Budget Office and the Department of the Treasury.

Notes: Outlay totals shown here include only spending directly resulting from the American Recovery and Reinvestment Act (ARRA); the 

effect on spending from regular appropriations or other authorizations (which, in any given year, might have been supplanted by

funding from ARRA) is not included in this table. CBO estimates that the effect on the deficit in 2009 and 2010 was somewhat less 

than the amounts shown here because additional spending from ARRA was partly offset by reduced spending from regular 

appropriations. (The opposite could be true for 2011 to 2019.) 

CBO has prepared estimates of ARRA’s effects only through 2019, consistent with the original cost estimate that was prepared when 

the legislation was considered in 2009. However, there will probably be some small net effects from additional spending and revenues 

after 2019. 

SNAP = Supplemental Nutrition Assistance Program.

a. The outlays shown for unemployment compensation include about $3 billion in intragovernmental transfers, most of which occurred in 

2009. The Administration recorded those transfers as outlays.

b. Negative numbers indicate an increase in the deficit.

U.S. employment, which could have been higher or lower 

than the number of FTE jobs reported, for several reasons 

(in addition to any issues concerning the quality of 

the reports’ data).4

 First, some of the jobs included in the 

reports might have existed even without the stimulus 

package, with employees working on the same activities 

or other activities. Second, the reports covered 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. Third, the reports did 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 have boosted demand for other products 

and services as they spent their paychecks. Fourth, the 

2016 - 2009 -

2009 2010 2011 2012 2013 2014 2015 2019 2019

Outlays

Department of Health and Human Services Services

Medicaid 32 40 12 4 3 2 2 4 99

Other 2 12 11 7 8 7 2 3 53

Refundable Tax Credits 3 45 38 6 5 0 0 0 97

Unemployment Compensationa 28 33 3 0 0 0 0 0 64

SNAP 5 11 12 8 6 6 0 0 48

Department of Education

State Stabilization Fund 12 23 12 2 1 1 1 0 54

Other (Including Pell grants) 9 19 11 3 1 1 0 0 44

Department of Transportation 4 17 11 5 3 1 2 3 46

Department of Energy 1 8 11 8 3 1 1 1 34

Build America Bonds 0 1 4 4 4 4 4 16 36

Social Security Administration 13 0 0 0 0 0 0 0 14

Other 7 25 21 12 6 2 1 0 74 ___ ___ ___ __ __ __ __ __ ___

Total Outlays 114 235 147 59 41 26 14 28 663

Revenues -65 -167 2 13 4 7 9 24 -173

Total Effect on the Deficitb -179 -401 -145 -47 -37 -19 -5 -4 -836

4. For a discussion of data quality, see Government Accountability 

Office, Recovery Act: Opportunities to Improve Management and 

Strengthen Accountability Over States’ and Localities’ Uses of Funds, 

GAO-10-999 (September 2010), www.gao.gov/new.items/

d10999.pdf (4.83 MB).
FEBRUARY 2015 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 3

CBO

recipients’ reports covered only certain ARRA appropriations, which encompassed about one-fifth of the total 

either spent by the government or conveyed through tax 

reductions in ARRA; the reports did 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. 

Estimating the law’s overall effects on employment 

requires a more comprehensive analysis than can be 

achieved by using the recipients’ reports. Therefore, looking at recorded spending to date along with 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 and drawing on various mathematical models that represent the workings of the economy.5

 On that basis, and as summarized in Table 2, CBO 

estimates that ARRA’s policies had the following effects in 

calendar year 2014 compared with what would have 

occurred otherwise:

 They raised real (inflation-adjusted) gross domestic 

product (GDP) by between a small fraction of a 

percent and 0.2 percent, 

 They lowered the unemployment rate by an amount 

between a small fraction of a percentage point and 

0.2 percentage points,

 They increased the number of people employed by 

between 0.1 million and 0.3 million, and

 They increased the number of full-time-equivalent 

jobs by between a slight amount and 0.2 million. 

The effects of ARRA on output peaked in the first half of 

2010 and have since diminished, CBO estimates. The 

effects of ARRA on employment are estimated to have 

lagged slightly behind the effects on output; CBO estimates that the employment effects began to wane at the 

end of 2010 and continued to do so through 2014. 

Although CBO has examined data on output and 

employment during the period since ARRA’s enactment, 

those data are not as helpful in determining ARRA’s 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 ARRA’s impact.

Measuring ARRA’s Impact Using 

Recipients’ Reports

ARRA required primary and secondary recipients of 

more than $25,000 from appropriations made under the 

law to report a variety of information each calendar quarter through the fourth quarter of 2013. That group 

included most grant and loan recipients, contractors, and 

subcontractors, but it excluded individual people. The 

information submitted included the amount of funding 

received and spent; the name, description, and completion status of the project or activity funded; the number 

of jobs funded; and, for investments in infrastructure, the 

purpose and cost of the investment. Recipients who filed 

reports reported the number of jobs on the basis of the 

number of employee hours paid for with ARRA funds.6

According to those reports, about 76,000 full-timeequivalent jobs were funded by ARRA on average in 

2013.7

 However, the reported number of jobs funded is 

not a comprehensive measure of ARRA’s effect on overall 

employment or even of those provisions of ARRA for 

which recipients’ reports were required. The actual 

impact could, in principle, have been significantly larger 

or smaller than the number of jobs reported. 

5. For a more detailed discussion of CBO’s approach to analyzing 

short-term fiscal policy, see Felix Reichling and Charles Whalen, 

Assessing the Short-Term Effects on Output of Changes in Federal 

Fiscal Policies, Working Paper 2012-08 (Congressional Budget 

Office, May 2012), www.cbo.gov/publication/43278.

6. Specifically, recipients were instructed to calculate the number of 

FTE jobs funded through ARRA by counting the total number 

of hours worked that were funded by ARRA during the fourth 

quarter, and dividing by the number of hours in a full-time 

schedule for a quarter. For details and examples, see Office of 

Management and Budget, “Recovery FAQs for Federal 

Contractors on Reporting” (accessed February 19, 2014), 

http://go.usa.gov/BwZY.

7. For the number of jobs by agency, see the Recovery Accountability 

and Transparency Board, “Top Agencies, as Reported by 

Recipients (Jan 1–Mar 31, 2013),” http://go.usa.gov/BwZQ; 

“Top Agencies, as Reported by Recipients (Apr 1–June 30, 

2013),” http://go.usa.gov/BwZw; “Top Agencies, as Reported 

by Recipients (Jul 1–Sep 30, 2013),” http://go.usa.gov/BwBj; 

and “Top Agencies, as Reported by Recipients (Oct 1–Dec 31, 

2013),” http://go.usa.gov/BwBV (all accessed February 19, 2014).
4 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 FEBRUARY 2015

CBO

Table 2.

Estimated Macroeconomic Impact of the American Recovery and Reinvestment Act, 

2009 to 2014

Source: Congressional Budget Office.

Note: * = between zero and 0.05; ** = between -0.05 and zero.

a. A year of full-time-equivalent employment years is 40 hours of employment per week for one year.

2009

Q1 * 0.1 ** ** * * * 0.1

Q2 0.4 1.3 -0.1 -0.3 0.1 0.5 0.2 0.7

Q3 0.6 2.4 -0.2 -0.6 0.3 1.1 0.4 1.7

Q4 0.7 3.3 -0.2 -1.0 0.5 1.9 0.7 2.7

2010

Q1 0.9 4.3 -0.3 -1.5 0.6 2.7 0.9 3.9

Q2 0.8 4.6 -0.4 -1.8 0.7 3.4 1.0 4.8

Q3 0.7 4.1 -0.4 -2.0 0.7 3.6 1.0 5.1

Q4 0.6 3.5 -0.3 -1.9 0.6 3.5 0.9 4.9

2011

Q1 0.6 3.2 -0.3 -1.8 0.6 3.3 0.8 4.6

Q2 0.4 2.5 -0.3 -1.6 0.5 2.9 0.7 4.0

Q3 0.3 2.0 -0.2 -1.3 0.4 2.4 0.5 3.3

Q4 0.2 1.5 -0.2 -1.1 0.3 2.0 0.4 2.6

2012

Q1 0.1 1.0 -0.1 -0.8 0.2 1.5 0.3 1.9

Q2 0.1 0.8 -0.1 -0.6 0.2 1.2 0.2 1.4

Q3 0.1 0.7 -0.1 -0.5 0.2 0.9 0.2 1.0

Q4 0.1 0.6 -0.1 -0.4 0.1 0.8 0.1 0.8

2013

Q1 0.1 0.5 -0.1 -0.3 0.1 0.6 0.1 0.6

Q2 0.1 0.4 ** -0.3 0.1 0.5 0.1 0.5

Q3 0.1 0.4 ** -0.3 0.1 0.5 0.1 0.4

Q4 * 0.3 ** -0.2 0.1 0.4 * 0.3

2014

Q1 * 0.3 ** -0.2 0.1 0.4 * 0.3

Q2 * 0.2 ** -0.2 0.1 0.3 * 0.2

Q3 * 0.2 ** -0.1 * 0.3 * 0.1

Q4 * 0.2 ** -0.1 * 0.2 * 0.1

2009 0.4 1.8 -0.1 -0.5 0.2 0.9 0.3 1.3

2010 0.7 4.1 -0.4 -1.8 0.7 3.3 0.9 4.7

2011 0.4 2.3 -0.2 -1.4 0.5 2.6 0.6 3.6

2012 0.1 0.8 -0.1 -0.6 0.2 1.1 0.2 1.3

2013 0.1 0.4 ** -0.3 0.1 0.5 0.1 0.5

2014 * 0.2 ** -0.2 0.1 0.3 * 0.2

Change Attributable to ARRA

Low High

Product (Percent) (Percentage points) (Millions, annualized) (Millions, annualized)a

Real Gross Domestic Unemployment Rate Employment Years

Full-Time-Equivalent

 Employment Years 

Calendar Year Quarters

Calendar Year Average

Low High

Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate

Low High Low High
FEBRUARY 2015 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 5

CBO

If, for example, recipients’ reports included employment 

that would have occurred without ARRA, the impact on 

employment suggested by the reports could be too great. 

Some people whose employment was attributed to ARRA 

might have worked on other activities in the absence of 

the law—for example, a business might have bid on 

other projects if its resources had not been committed to 

projects funded by ARRA. In the case of government 

employees, state or local taxes might have been raised 

in the absence of ARRA funding (or transfer payments 

might have been reduced) to pay for some of the jobs that 

were counted as funded by ARRA. 

Conversely, the reported figure could be too low because 

the reporting requirement was limited to primary and 

secondary recipients of funds and thus excluded lowerlevel recipients, such as subcontractors hired by a main 

subcontractor. Thus, if expenditures under ARRA led to 

increases in employment among lower-level subcontractors and vendors, those effects were missed by the reports. 

Recipients’ reports also did not include indirect effects 

that could have increased or decreased the impact on 

employment. Among those effects are potential declines 

in employment in other businesses or economic sectors as 

demand shifts toward the recipients of ARRA funding—

a phenomenon often called the “crowding out” effect of 

government policies. Conversely, spending under ARRA 

could have led to higher employment at companies that 

are not directly connected to that spending—for example, because of additional purchases made by people 

who would have been unemployed were it not for 

ARRA funds. CBO estimates that, under the economic 

conditions since 2009, the indirect effects, on net, would 

have tended to reinforce the direct effects for most of the 

range of their estimated magnitude.

Finally, the recipients’ reports reflected only about onefifth of the total amount of spending increases or tax 

reductions that are attributable to ARRA’s provisions. 

The reports covered direct government purchases of 

goods and services, grants and loans to private entities, 

and some grants to states and localities, but they did not 

cover tax cuts or increases in transfer payments to individuals. The tax reductions and spending that were 

not covered by the recipients’ reports probably had substantial effects on purchases of goods and services and, 

therefore, on employment.

Measuring ARRA’s Impact Using 

Economic Models and Historical Data

CBO used various economic models and historical 

data to guide its estimate of the way in which output 

and employment were affected by increases in outlays 

and reductions in revenues under ARRA. CBO’s assessment is that different elements of ARRA (such as particular types of tax cuts, transfer payments, and government 

purchases) have had different effects on economic output 

per dollar of higher spending or lower tax receipts. Multiplying estimates of those per-dollar effects by the dollar 

amounts of each element of ARRA yields an estimate of 

the law’s total impact on output. To produce estimates 

of ARRA’s total impact on employment, CBO combined 

that estimate with estimates of how changes in output 

affect the unemployment rate and participation in the 

labor force.

CBO’s Modeling Approach

CBO used evidence from models and historical relationships to determine estimated “multipliers” for each of 

several categories of spending and tax provisions in 

ARRA, as shown in Table 3. Each multiplier represents 

the estimated direct and indirect effects on the nation’s 

output of a dollar’s worth of a given policy. Therefore, a 

provision’s multiplier can be applied to the budgetary cost 

of that provision to estimate its overall impact on output. 

Direct effects consist of immediate (or first-round) 

effects on economic activity. Government purchases of 

goods and services directly add to the nation’s output, 

dollar for dollar. For reductions in taxes, increases in 

transfer payments, and increases in aid to state and local 

governments, the size of the direct effect depends on the 

policy’s impact on the behavior of recipients. If someone 

receives a dollar in transfer payments and spends 80 cents 

(saving the other 20 cents), production increases over 

time to meet the additional demand generated by that 

spending, and the direct impact on output is 80 cents. 

Similarly, if a dollar in aid to a state government leads 

that government to spend 50 cents more on employees’ 

salaries (but causes no other changes in state spending or 

revenues, with the other 50 cents used to reduce borrowing or build up rainy-day funds), the direct impact on 

output is 50 cents.
6 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 FEBRUARY 2015

CBO

Table 3.

Estimated Output Multipliers for Major Provisions of the American Recovery and 

Reinvestment Act of 2009

Continued

CBO reviewed evidence on the responses of households, 

businesses, and governments to various types of tax cuts 

and transfer payments to estimate the size of those 

policies’ direct effects on output.8

 For example:

 A one-time cash payment is likely to have less impact 

on a household’s purchases than is a longer-lasting 

change to disposable income because the one-time 

payment has a smaller effect on total lifetime 

disposable income. 

 Increases in disposable income are likely to boost 

purchases more for lower-income than for higherincome households. That difference arises, at least in 

part, because a larger share of people in lower-income 

households cannot borrow as much money as they 

would wish in order to spend more than they do 

currently. 

Type of Activity Major Provisions of ARRA

Purchases of Goods and Services 0.5 2.5 Division A, Title II: Other; Title IV: Energy Efficiency and

by the Federal Government Renewable Energy; Title IV: Innovative Technology Loan

Guarantee Program; Title IV: Other Energy Programs; Title V: 

Federal Buildings Fund; Title VIII: National Institutes of Health;

Title VIII: Other Department of Health and Human Services

Transfer Payments to State and 0.4 2.2 Division A, Title VII: Clean Water and Drinking Water State 

Local Governments for Revolving Funds; Title XI: Other Housing Assistance; 

Infrastructure Title XII: Highway Construction; Title XII:

Other Transportation 

Transfer Payments to State and 0.4 1.8 Division A, Title VIII: Education for the Disadvantaged; 

Local Governments for Other Title VIII: Special Education; Title IX: State Fiscal Stabilization 

Purposes Division B, Title V: State Fiscal Relief Fund

Transfer Payments to Individuals 0.4 2.1 Division A, Title I: Supplemental Nutrition Assistance Program; 

Title VIII: Student Financial Assistance; Division B, Title I: 

Refundable Tax Credits; Title II: Unemployment 

Compensation; Title III: Health Insurance Assistanceb

Onetime Payments to Retirees 0.2 1.0 Division B, Title II: Economic Recovery Payments

Two-Year Tax Cuts for Lower- 0.3 1.5 Division B, Title I: Making Work Pay Credit;

and Middle-Income People American Opportunity Tax Credit

One-Year Tax Cut for 0.1 0.6 Increase in Individual AMT Exemption Amount

Higher-Income People

Extension of First-Time 0.2 0.8 Extension of First-Time Homebuyer Credit

Homebuyer Credit

Estimated Output Multipliersa

Low Estimate High Estimate

8. On household spending, for example, see Jonathan A. Parker 

and others, Consumer Spending and the Economic Stimulus 

Payments of 2008, Working Paper 16684 (National Bureau of 

Economic Research, January 2011), www.nber.org/papers/

w16684; Matthew D. Shapiro and Joel Slemrod, “Did the 2008 

Tax Rebates Stimulate Spending?” American Economic Review,

vol. 9, no. 2 (May 2009), pp. 374–379, www.jstor.org/stable/

25592427; Sumit Agarwal, Chunlin Liu, and Nicholas S. 

Souleles, “The Reaction of Consumer Spending and Debt to 

Tax Rebates: Evidence From Consumer Credit Data,” Journal of 

Political Economy, vol. 115, no. 6 (December 2007), pp. 986–

1019, www.jstor.org/stable/10.1086/528721; and David S. 

Johnson, Jonathan A. Parker, and Nicholas S. Souleles, 

“Household Expenditure and the Income Tax Rebates of 2001,” 

American Economic Review, vol. 96, no. 5 (December 2006), 

pp. 1589–1610, www.jstor.org/stable/30034986.
FEBRUARY 2015 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 7

CBO

Table 3. Continued

Estimated Output Multipliers for Major Provisions of the American Recovery and 

Reinvestment Act of 2009

Source: Congressional Budget Office.

Notes: Provisions affecting outlays (including refundable tax provisions) are identified by the same names used in CBO’s cost estimate for the 

conference report on H.R. 1. Provisions affecting revenues—all of which are included in Title I of the American Recovery and 

Reinvestment Act (ARRA)—are identified by the names used in the Joint Committee on Taxation’s (JCT’s) estimate (see 

www.house.gov/jct/x-19-09.pdf). 

Some provisions include individual elements that have different multipliers, by CBO’s estimate; in those cases, the provisions are listed 

with the multiplier used for the majority of the 2009–2019 budgetary cost.

The economic impact of three tax provisions with budgetary costs over $5 billion was analyzed using a different methodology, and 

their effects cannot easily be summarized by a multiplier. Those provisions were titled “Extend by Three Years the Placed-In-Service 

Date for Each Section 45 Qualified Facility” and “One-Year Extension of Special Allowance for Certain Property Acquired During 2009” 

in JCT’s estimate and “Health Information Technology” in CBO’s estimate. Some other provisions, with total budgetary costs of less 

than $7 billion, were included in the analysis but are not shown in the table.

AMT = alternative minimum tax.

a. The output multiplier is the cumulative impact of spending under the provisions on gross domestic product over several quarters. The 

ranges shown in the table reflect the fact that the Federal Reserve was holding short-term interest rates about as low as possible and did 

not tighten monetary policy in response to a fiscal stimulus.

b. This provision is a reduction in taxes, but it is treated as having the same economic impact as transfer payments to individuals.

 Changes to corporate taxes that primarily affect aftertax profits on past investment generally have a smaller 

impact on output than do policies that alter the return 

from new investment. 

Government policies also can have indirect effects that 

enhance or offset the direct effects. Direct effects are 

enhanced when, for example, a government policy creates 

jobs and those who are hired use their income to 

boost consumption. Direct effects also are enhanced 

when greater demand for goods and services prompts 

companies to increase investment to bolster their future 

production.

In the other direction, substantial government spending 

can cause a shift in resources (including employees) 

away from production in other businesses and sectors 

to government-funded projects. That indirect crowdingout effect could cause growth in employment among 

recipients of ARRA funding to be offset by declines in 

employment elsewhere in the economy. Increases in interest rates are one possible mechanism for such crowding 

out: Higher interest rates discourage spending on investment and on durable goods such as cars because they raise 

the cost of borrowing. However, because the Federal 

Reserve has kept short-term interest rates very low, that 

mechanism does not appear to have been an important 

factor in 2014. By another mechanism for crowding out, 

activities funded by ARRA could reduce production elsewhere in the economy if they used scarce materials or 

workers with specific skills, creating bottlenecks that hindered other activities. That effect, too, has probably been 

much smaller since ARRA was enacted than it might have 

been otherwise because of high unemployment and a 

large amount of unused resources (as well as the diversity 

of activities funded under ARRA). 

In estimating the magnitude of indirect effects, CBO 

relied heavily on estimates from macroeconometric forecasting models, informed by evidence from other types 

Type of Activity Major Provisions of ARRA

Corporate Tax Provisions 0 0.4 Deferral and Ratable Inclusion of Income Arising From Business 

Primarily Affecting Cash Flow Indebtedness Discharged by the Reacquisition of a Debt 

Instrument; Clarification of Regulations Related to Limitations 

on Certain Built-In Losses Following an Ownership Change; 

Recovery Zone Bonds; Qualified School Construction Bonds 

Estimated Output Multipliersa

Low Estimate High Estimate
8 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 FEBRUARY 2015

CBO

of models, direct estimation using historical data, and 

ongoing review of relevant research.9

The multipliers are applied to outlays when they occur 

and to changes in taxes or transfer payments when they 

affect disposable income. CBO’s estimates, therefore, 

account for the different rates of spending for various 

types of appropriations and, similarly, for the timing of 

different tax cuts or transfer payments. In some cases, 

when different elements of a single provision were estimated to have different multipliers, the total cost of a 

provision was divided among more than one category. 

In those cases, the provision is shown in Table 3 in the 

category to which most of its budgetary cost applied. 

Provisions that affect outlays (including refundable tax 

credits) are identified by the same names used in CBO’s 

cost estimate for the conference agreement on ARRA.10

Provisions that affect revenues are identified by the names 

used in the revenue estimate prepared by the staff of the 

Joint Committee on Taxation for the same legislation.11

The estimates of ARRA’s effects on output were translated into estimates of the effects on the unemployment 

rate, total employment, and FTE employment in a series 

of steps. First, the impact on the output gap—the percentage difference between actual and potential output—

was calculated.12 Next, the effect of the change in the output gap on the unemployment rate was estimated using 

the historical relationship between those two measures.13

Then, the effect of changes in the unemployment rate 

on the labor force was taken into account: If unemployment declines and the economic environment improves, 

discouraged workers and people who have chosen to pursue activities such as education rather than work will tend 

to return to the labor force. Together, the estimated effect 

on the unemployment rate and the effect on the labor 

force were used to estimate the impact on the number of 

people employed. The change in FTE employment was 

then estimated using the historical relationship between 

changes in hours per employed worker and changes in the 

gap between the unemployment rate and CBO’s estimate 

of the natural rate of unemployment.14 Because higher 

spending and lower taxes can affect output and unemployment for some time after they occur, the impact of 

ARRA on employment in 2014 depended partly on the 

law’s effect on spending and revenues in previous years.

A key advantage of the model-based approach used in 

this analysis is the ability to provide estimates of the total 

effects throughout the economy of the government 

spending, transfer payments, and tax cuts resulting from 

ARRA. By focusing on the net change in employment, 

that approach captures both the jobs created and the jobs 

retained as a result of ARRA.

A key disadvantage of the model-based approach is the 

considerable uncertainty about many of the economic 

relationships that are important in the modeling. Because 

economists differ on which analytical approaches provide 

the most convincing evidence about such relationships, 

they can reach different conclusions about those relationships. In addition, each study involves uncertainty about 

the extent to which the results reflect the true effects of 

a given policy or the effects of other factors. For those 

reasons, CBO provides ranges of estimates of ARRA’s 

economic effects that are intended to encompass most 

economists’ views and thereby reflect the uncertainty 

involved in such estimates.

Changes From CBO’s Previous Estimates of the 

Impact of ARRA 

CBO’s current estimates of the economic effects of ARRA 

for the years 2009 to 2013 are identical to those the 

9. For a detailed discussion of those sources of information, see 

Felix Reichling and Charles Whalen, Assessing the Short-Term 

Effects on Output of Changes in Federal Fiscal Policies, Working 

Paper 2012-08 (Congressional Budget Office, May 2012), 

www.cbo.gov/publication/43278.

10. See Congressional Budget Office, cost estimate for the conference 

agreement for H.R. 1, the American Recovery and Reinvestment 

Act of 2009 (February 13, 2009), www.cbo.gov/publication/

41762.

11. See Joint Committee on Taxation, Estimated Budget Effects of the 

Revenue Provisions Contained in the Conference Agreement for 

H.R. 1, JCX-19-09 (February 12, 2009), www.jct.gov/x-19-09.pdf 

(40 KB).

12. Potential output is the maximum sustainable output of the 

economy. 

13. Changes in the output gap affect unemployment gradually over 

several quarters. Initially, part of a rise in output shows up as 

higher productivity and hours per worker rather than as reduced 

unemployment.

14. The natural rate of unemployment is the rate that arises from all 

sources except cyclical fluctuations in economywide demand for 

goods and services.
FEBRUARY 2015 ESTIMATED IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT ON EMPLOYMENT AND ECONOMIC OUTPUT IN 2014 9

CBO

agency published in February 2014.15 In this report, 

CBO provides estimates of the economic effects of ARRA 

in 2014 for the first time.

ARRA’s Long-Run Effects 

In contrast to its positive near-term macroeconomic 

effects, ARRA will reduce output slightly in the long run, 

CBO estimates—by between zero and 0.2 percent after 

2016. But CBO expects that the legislation will have no 

long-term effects on employment because the U.S. economy will have a high rate of use of its labor resources in 

the long run.16

ARRA’s long-run impact on the economy will stem primarily from the resulting increase in government debt.17

To the extent that people hold their wealth in government securities rather than in a form that can be used to 

finance private investment, increased debt tends to 

reduce the stock of productive private capital. In the long 

run, each dollar of additional debt crowds out about a 

third of a dollar’s worth of private domestic capital, CBO 

estimates. (The remainder of the rise in debt is offset by 

increases in private saving and inflows of foreign capital.) 

Because of uncertainty about the degree of crowding out, 

however, CBO’s range of estimates of ARRA’s long-run 

effects reflects the possibility that the extent of crowding 

out could be more or less than one-third of the added 

debt.

Over the long term, the output of the economy depends 

on the stock of productive capital, the supply of labor, 

and productivity. The less productive capital there is as 

a result of lower private investment, the smaller will be 

the nation’s output over the long run.

The effect of the crowding out of some private investment under ARRA will be offset somewhat by other 

factors. Some of ARRA’s provisions, including its funding 

for roads and highways, may add to the economy’s potential output in much the same way that private capital 

investment does. Others, including its funding of education, may raise long-term productivity by enhancing 

people’s skills. Still other provisions create incentives for 

increased private investment. According to CBO’s estimates, the provisions that potentially add to long-term 

output account for between one-fifth and one-quarter 

of ARRA’s budgetary cost. 

ARRA’s long-run effect on output also depends on 

whether it permanently changed people’s saving or their 

ability or willingness to work. For example, to the extent 

that ARRA reduced long-term unemployment during the 

2009–2014 period, it might improve participation in 

the labor force, employment, and productivity in later 

years. However, CBO’s estimates of the long-term effects 

of ARRA do not incorporate any effects of that sort.

15. See Congressional Budget Office, Estimated Impact of the 

American Recovery and Reinvestment Act on Employment and 

Economic Output in 2013 (February 2014), http://www.cbo.gov/

publication/45122. 

16. The reduction in GDP is therefore estimated to be reflected in 

lower wages rather than less employment, as workers will be 

slightly less productive because the capital stock will be slightly 

smaller. See Congressional Budget Office, letter to the Honorable 

Judd Gregg concerning the estimated macroeconomic impacts of 

H.R. 1 as passed by the House and the Senate (February 11, 

2009), www.cbo.gov/publication/20474. CBO has not updated 

those estimates.

17. For a discussion of the long-run effects of other debt-financed 

policies for boosting output and employment, see testimony of 

Douglas W. Elmendorf, Director, Congressional Budget Office, 

before the Senate Committee on the Budget, Policies for Increasing 

Economic Growth and Employment in 2012 and 2013

(November 15, 2011), www.cbo.gov/publication/42717.

Section 1512(e) of the American Recovery and 

Reinvestment Act of 2009 (ARRA) requires the 

Congressional Budget Office (CBO) to comment on 

reports filed by recipients of ARRA funding that detail 

the number of jobs funded through their activities. This 

CBO report fulfills that requirement. Felix Reichling of 

CBO’s Macroeconomic Analysis Division wrote the 

report under the supervision of Wendy Edelberg and 

Benjamin Page. Mark Lasky, Dan Ready, and Joshua 

Shakin contributed to the analysis. This report, along 

with previous reports on the topic, is available at the 

agency’s website (www.cbo.gov).

Douglas W. Elmendorf 

Director