CBO

NOVEMBER 2012

Estimated Impact of the American 

Recovery and Reinvestment Act on 

Employment and Economic Output from 

July 2012 Through September 2012

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 (CBO) 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 about $833 billion. By 

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

fiscal year 2010, and more than 90 percent of ARRA’s 

budgetary impact was realized by the end of September 

2012.

Various recipients of ARRA funds (most recipients of 

grants and loans, contractors, and subcontractors) are 

required to report, after the end of each calendar quarter, 

the number of jobs funded through ARRA. The law also 

requires CBO to comment on those reported numbers.1

During the third quarter of calendar year 2012, recipients 

reported, ARRA funded more than 135,000 full-timeequivalent (FTE) jobs.2

 Those reports, however, do not 

provide a comprehensive estimate of the law’s impact on 

U.S. employment, which could be higher or lower than 

the number of FTE jobs reported, for several reasons (in 

addition to any issues concerning the quality of the 

1. Public Law 111-5, sections 1512(c) and 1512(e); 123 Stat. 115, 

288. This report is the 13th in CBO’s series of quarterly reports. 

For the previous report, see Congressional Budget Office, 

Estimated Impact of the American Recovery and Reinvestment Act on 

Employment and Economic Output from April 2012 Through June 

2012 (August 2012). 

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

information) are shown at www.recovery.gov. 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.

Note: Numbers in the text and tables may not add up to totals because of rounding.
2 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 NOVEMBER 2012

CBO

reports’ data).3

 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 cover 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 do 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 boost demand for other products and services as they spent their paychecks. Fourth, the recipients’ 

reports cover only certain ARRA appropriations, which 

encompass about one-fifth of the total either spent by 

the government or conveyed through tax reductions in 

ARRA; 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 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.4

 On that basis, and as summarized in Table 1, 

CBO estimates that ARRA’s policies had the following 

effects in the third quarter of calendar year 2012 compared with what would have occurred otherwise:

 They raised real (inflation-adjusted) gross domestic 

product (GDP) by between 0.1 percent and 

0.7 percent, 

 They lowered the unemployment rate by between 

0.1 percentage points and 0.5 percentage points,

 They increased the number of people employed by 

between 0.2 million and 0.9 million, and

 They increased the number of full-time-equivalent 

jobs by 0.2 million to 1.0 million. (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 peaked in the first half of 

2010 and have since diminished, CBO estimates. The 

effects of ARRA on employment are estimated to lag 

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 the third quarter of 

2012. Still, CBO estimates that, compared with what 

would have occurred otherwise, ARRA will raise real 

GDP in 2012 by between 0.1 percent and 0.8 percent 

and will increase the number of people employed in 2012 

by between 0.2 million and 1.1 million. 

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 requires primary and secondary recipients of more 

than $25,000 from appropriations made under the law to 

report a variety of information each calendar quarter. 

That group includes most grant and loan recipients, contractors, and subcontractors, but it excludes individual 

people. The information to be submitted includes 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 third-quarter reports in 

October 2012 reported the number of jobs on the basis 

3. 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. 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, Congressional Budget Office Working Paper 

2012-08 (May 2012).
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 3

CBO

Table 1.

Estimated Macroeconomic Impact of the American Recovery and Reinvestment 

Act, 2009 to 2013

Source: Congressional Budget Office. 

Note: * = Between -0.05 and 0.05.

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 1.4 -0.1 -0.3 0.1 0.5 0.2 0.7

Q3 0.6 2.4 -0.2 -0.6 0.3 1.2 0.4 1.7

Q4 0.7 3.4 -0.3 -1.1 0.5 1.9 0.7 2.8

2010

Q1 0.9 4.3 -0.3 -1.5 0.6 2.7 0.9 4.0

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 3.9

Q3 0.3 2.0 -0.2 -1.3 0.4 2.4 0.5 3.2

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 1.3

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 0.7

2013

Q1 0.1 0.5 -0.1 -0.3 0.1 0.6 0.1 0.5

Q2 0.1 0.4 * -0.3 0.1 0.5 0.1 0.4

Q3 0.1 0.4 * -0.2 0.1 0.5 * 0.3

Q4 * 0.3 * -0.2 0.1 0.4 * 0.2

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 0.4 2.6 0.6 3.6

2012 0.1 0.8 -0.1 -0.6 0.2 1.1 0.2 1.2

2013 0.1 0.4 * -0.3 0.1 0.5 0.1 0.3

Calendar Year Quarters

Calendar Year Average

Low High

Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate

Low High Low High Low High

Product (Percent) (Percentage points) (Millions of people) Employment Years (Millions)a

Change Attributable to ARRA

Real Gross Domestic Unemployment Rate Employment Years Full-Time-Equivalent
4 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 NOVEMBER 2012

CBO

of the number of employee hours paid for with ARRA 

funds in the quarter.5

According to those reports, 135,455 full-time-equivalent 

jobs were funded by ARRA during the third quarter.6

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 are required. The actual impact 

could, in principle, be significantly larger or smaller than 

the number of jobs reported. 

If, for example, recipients’ reports include 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 is limited to primary and 

secondary recipients of funds and thus excludes 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 would be missed by 

the reports. 

Recipients’ reports also do not include indirect effects 

that could increase or decrease 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 lead to higher employment at companies that are 

not directly connected to that spending—for example, 

because of additional purchases made by people who 

would be unemployed were it not for ARRA funds. CBO 

estimates that, under current conditions, the indirect 

effects, on net, would tend to reinforce the direct effects 

for most of the range of their estimated magnitude.

Finally, the recipients’ reports reflect only about one-fifth 

of the total amount of spending increases or tax reductions that are attributable to ARRA’s provisions. The 

reports cover direct government purchases of goods and 

services, grants and loans to private entities, and some 

grants to states and localities, but they do not cover tax 

cuts or increases in transfer payments to individuals. 

The tax reductions and spending that are 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 are 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 2. Each multiplier represents 

5. 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 third 

quarter, divided 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,” 

www.whitehouse.gov/omb/recovery_faqs_contractors/#report15.

6. For the number of jobs by agency, see “Top Agencies, as Reported 

by Recipients (Jul 1-Sep 30, 2012),” www.recovery.gov/Pages/

TextView.aspx?data=jobSummaryAgency&topnumber=200&qtr

=2012Q3.
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 5

CBO

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.

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.7

 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 higher-income 

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. 

 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 through the third quarter of 2012. 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 

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

and others, Consumer Spending and the Economic Stimulus 

Payments of 2008, Working Paper 16684 (Cambridge, Mass.: 

National Bureau of Economic Research, January 2011);

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; 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; 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.
6 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 NOVEMBER 2012

CBO

Table 2.

Estimated Output Multipliers of Major Provisions of the American Recovery and 

Reinvestment Act of 2009

Continued

forecasting models, informed by evidence from other 

types of models, direct estimation using historical data, 

and ongoing review of relevant research.8

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 2 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 

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; Title XII: 

Infrastructure Highway Construction; Title XII: Other Transportation 

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

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

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

One-Time 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 Higher- 0.1 0.6 Increase in Individual AMT Exemption Amount

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. 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, Congressional Budget 

Office Working Paper 2012-08 (May 2012).
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 7

CBO

Table 2. Continued

Estimated Output Multipliers of 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 by CBO in its cost estimate for 

the conference agreement for H.R. 1, the American Recovery and Reinvestment Act of 2009 (February 13, 2009). Provisions affecting 

revenues—all of which are included in title I of the American Recovery and Reinvestment Act of 2009 (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 assume that the Federal Reserve is holding short-term interest rates about as low as possible and would 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.

cost estimate for the conference agreement on ARRA.9

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.10

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.11 Next, the effect of the change in 

the output gap on the unemployment rate was estimated 

using the historical relationship between those two 

measures.12 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 

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

9. 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).

10. 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.. 

11. Potential output is the level of production that corresponds to a 

high rate of use of labor and capital. 

12. 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.
8 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 NOVEMBER 2012

CBO

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.13 Because higher spending and lower 

taxes can affect output and unemployment for some time 

after they occur, the impact of ARRA on employment in 

the third quarter of 2012 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 estimates of the economic effects of ARRA are 

identical to those the agency published in August 2012.14

Although estimates of the quarterly budgetary effects of 

ARRA have changed slightly, the differences are not 

significant enough to change CBO’s estimates of the 

economic effects of ARRA on real GDP, unemployment, 

and employment.

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.15

ARRA’s long-run impact on the economy will stem primarily from the resulting increase in government debt.16

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

finance private investment, the 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 

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

sources except cyclical fluctuations in economywide demand for 

goods and services.

14. See Congressional Budget Office, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic 

Output from April 2012 Through June 2012 (August 2012). 

15. 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). CBO has not updated those estimates.

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

policies for boosting output and employment, see statement 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).
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2012 THROUGH SEPTEMBER 2012 9

CBO

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 

2009–2012 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.

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 William Randolph. Jared Brewster, 

Mark Lasky, Benjamin Page, and Joshua Shakin 

contributed to the analysis. This report, along with 

previous reports on the topic, is available at the 

agency’s Web site (www.cbo.gov).

Douglas W. Elmendorf 

Director