EXECUTIVE OFFICE OF THE PRESIDENT 

COUNCIL OF ECONOMIC ADVISERS 

ESTIMATES OF JOB CREATION FROM THE 

AMERICAN RECOVERY AND REINVESTMENT ACT OF 

2009 

May 2009 

 

The American Recovery and Reinvestment Act (ARRA) was designed to save and 

create jobs, as well as to cushion the economic downturn and make crucial 

public investments. At the time of passage, the Council of Economic Advisers 

(CEA) made estimates of the employment effects of the Act for the economy as 

a whole. As the money is being distributed by the various agencies, there is 

interest in estimates of the likely jobs effects of the individual pieces. Of 

course, as projects swing into action, the government will gather actual data on 

reported job creation. This report describes the estimating procedures used so 

far; specifies procedures to be used by recipients for estimating job creation 

going forward; discusses reporting requirements for job creation; and describes 

the procedures the CEA will use to evaluate the job creation and retention 

benefits of the ARRA going forward. 
I. AGGREGATE ESTIMATES OF THE JOB IMPACT OF THE ARRA

The methodology used to estimate the job impact of the ARRA was described in 

detail in Romer and Bernstein (Obama Transition Document, January 11, 2009). 

In this section we briefly summarize the methodology and discuss the results. 

Methodology

The ARRA of 2009 had a total fiscal impact of $787 billion. The individual 

components fall into six broad categories: individual income tax cuts; a twoyear patch to the alternative minimum tax; investment incentives; aid to people 

directly hurt by the recession; state fiscal relief, and direct government 

investment spending. At the time of passage, we took the best estimates 

available of the total amount of spending in each of these categories. We used 

Office of Management and Budget (OMB) estimates to specify the likely spendout, by quarter, of each broad category. 

To estimate the likely impact of the fiscal stimulus package on real GDP, we 

used multipliers that we feel represent a consensus of a broad range of 

economists and professional forecasters. Our particular multipliers for an 

increase in government purchases of 1% of GDP and a decrease in taxes of 1% 

of GDP are given in the Appendix. They are broadly similar to those implied by 

the Federal Reserve’s FRB/US model and the models of leading private 

forecasters, such as Macroeconomic Advisers. 
The final step is to take the effect on GDP and translate it into job creation. Not 

all of the increased output reflects increased employment: some comes from 

increases in hours of work among employed workers and some comes from 

higher productivity. We therefore use the relatively conservative rule of thumb 

that a 1 percent increase in GDP corresponds to an increase in employment of 

approximately 1 million jobs, or about three-quarters of a percent. This has 

been the rough correspondence over history and matches the FRB/US model 

reasonably well. The effect on jobs using the estimates from most private 

sector forecasting models would be somewhat larger. The effects on 

employment, however, lag slightly those on real GDP. To capture the usual 

pattern, we assume that one-half of the employment effect occurs in the 

contemporaneous quarter, one-third occurs in the subsequent quarter, and 

one-sixth in the quarter two quarters ahead. 

Estimated Job Creation at Different Horizons

The results of this analysis show the effects on employment, relative to the nostimulus baseline, in each quarter of the current and next several years. The 

Administration has summarized the results by looking at the number of jobs 

(relative to the baseline) as of 2010Q4. Our finding was that the ARRA would 

increase employment relative to the baseline in this quarter by approximately 

3.5 million. Table 1 shows the estimated impact as of the fourth quarter of each 

of the current and next three years. This table shows that the jobs attributable 

to the recovery package rises over 2009 and 2010, as the stimulus increases, 

and then falls as the fiscal stimulus is withdrawn. 
Table 1 

Estimates of Jobs Saved or Created by the ARRA of 2009 at Different Times 

As of the 4th Quarter of

2009 1.5 million 

2010 3.5 million 

2011 1.7 million 

2012 0.3 million 

Average for the Year 2009

0.7 million 

2010 3.0 million 

2011 2.5 million 

2012 0.7 million 

The results for each quarter can also be averaged over the year. The results of 

this exercise are also shown in Table 1. The numbers in the second column 

show the average impact on employment over the year (relative to the baseline) 

of the ARRA. 

Total Job-Years Created

For some purposes, looking at the effects at a single point in time is not the 

most useful approach. Since the economy is likely to be operating below 

capacity for several years, job creation any time over the next several years is 

valuable. Thus, a second way to look at the employment effects of the program 

is to estimate the number of job-years the program will create over the 

President’s first term. A job-year means simply one job for one year. 

To estimate the impact of the ARRA in terms of job-years, one simply adds up 

the average jobs created per year over the total number of years. Two statistics 

summarizing the estimates are presented in Table 2. The first is the familiar 

estimate that the ARRA will save or create approximately 3.5 million jobs as of 

the fourth quarter of 2010. The other is an estimate that the Act will save or 

create about 6.8 million job-years by the end of 2012. This estimate is 

obtained by simply adding the estimates of the amount the program will 

increase average employment in each of 2009, 2010, 2011, and 2012. (The 

slight difference between the 6.8 million figure and what one obtains by 

summing the numbers reported in Table 1 is due to rounding.) 
Table 2

Estimates of the Overall Jobs Effects of the ARRA of 2009

Jobs Created in 2010Q4 

Job-Years Created through End of 

2012 

3.5 million 

6.8 million 

II. JOBS ESTIMATES FOR INDIVIDUAL PROGRAMS AND AGENCIES

Different elements of the program have quite different spending patterns. For 

example, some of the elements that provide assistance to individuals directly 

hurt by the recession will have substantial spending in 2009, while some of the 

elements that emphasize long-term investment will have significant spending 

in 2011. Given the projected weakness in the economy, job creation in both 

years is very valuable. But, because the time patterns are so different, there is 

no single quarter one can focus on that provides a useful summary of how each 

piece is contributing to overall job creation. For that reason, in looking at a 

specific part of the program, it is more helpful to look at the employment 

effects in terms of total job-years over the next four years. The Administration 

will therefore focus on job-year figures for specific parts of the program. For 

the program as whole, in contrast, it is helpful to consider the employment 

effects both as of 2010Q4 and in terms of total job-years, and the 

Administration will emphasize both measures. 
Job-Years Created by Different Types of Stimulus

To estimate the job-years created by different types of fiscal stimulus, we 

simulate the macroeconomic model. We consider the three main types of fiscal 

stimulus: government spending, a tax cut, and state fiscal relief. In each case, 

we simulate a change of $100 billion in fiscal year 2009. The model uses a 

plausible assumption about the distribution of the spending or tax reduction 

over the fiscal year. This simulation shows the job-years created by $100 

billion of a type of fiscal stimulus by the end of 2012. The results of this 

simulation are given Table 3. The results show that a dollar of government 

spending creates roughly 1.6 times as many job-years as a dollar of tax cuts 

and 1.3 times as many job-years as a dollar of state fiscal relief. These 

numbers are a reflection of the different multipliers used in the simulation. 

Table 3

Estimates of Job-Years Created by Different Types of Fiscal Stimulus

$100 billion of government spending creates 1,085,355 job-years 

$100 billion of tax cuts creates 687,991 job-years 

$100 billion of state fiscal relief creates 857,610 job-years 

These simulation results can also be used to give an estimate of the 

approximate amount of spending it takes to create a job-year for different 

types of stimulus. To derive these estimates, one just divides $100 billion by 

the estimated number of job-years. The results are given in Table 4. They 

suggest that the spending needed per job-year is noticeably higher for tax cuts 

than for state fiscal relief or direct government spending. 
Table 4

Estimates of Spending Needed to Create 1 Job-Year 

for Different Types of Fiscal Stimulus

overnment spending: 

Tax cuts: 

State fiscal relief: 

$92,136 per job-year 

$145,351per job-year 

$116,603 per job-year 

Guidance to Agencies on Estimating Job-Years from Government Spending 

The estimates for the job-years created by direct government spending indicate 

that it takes approximately $92,000 of spending to create one job-year. Thus, 

for example, if increased spending in one portion of the program through the 

end of 2012 is $11 billion, that spending will create about 120,000 job-years 

during the President’s first term. 

Since most workers earn much less than $92,000 a year, the figure of $92,000 

per job-year may seem large. The source of the gap between average wages 

and the cost per job-year is that the increase in GDP resulting from stimulus 

does not all take the form of wages for newly-employed workers. Some workers 

switch from part-time to full-time; some find their existing time at their jobs 

more fully utilized; and some add overtime. Further, there are increases in 

compensation costs other than wages, and in rents, profits, and other types of 

non-compensation income. A useful comparison is that the ratio of annual GDP 

to total employment in the economy is about $105,000. Thus, a figure of 

$92,000 per job-year is plausible and represents a very reasonable "bang for 

the buck." 
Agencies often breakdown job-year estimates into three categories: 

 Direct jobs, which are the job-years created in the actual governmentsponsored project. 

 Indirect jobs, which are the job-years created at suppliers who make the 

materials used in the project. 

 Induced jobs, which are the job-years created elsewhere in the economy 

as increases in income from the direct government spending lead to 

additional increases in spending by workers and firms. 

Both indirect jobs and induced jobs are entirely in the private sector. Some 

direct jobs may represent workers hired directly by the government. But, for the 

American Recovery and Reinvestment Act, we anticipate that the vast majority 

of these are private sector jobs at firms working under contract on government 

projects or receiving grants or tax incentives for particular activities, such as 

weatherization. 

The macroeconomic methodology used to derive the aggregate jobs estimates 

provides only an imperfect way to try to separate out the different types of jobs 

created by government spending. In particular, we are able to separate the 

direct and indirect jobs (together) from the induced jobs. To do this, we assume 

that the direct and indirect output effects of government spending move onefor-one with spending. That is, each dollar spent goes one-for-one into GDP. 

We then use the usual rule of thumb that a 1% rise in GDP creates 1 million jobs 

(distributed over three quarters) to estimate the direct and indirect jobs of a 

type of spending. The induced jobs are estimated as the difference between the 

total jobs created and the estimate of the direct and indirect jobs. For a typical 

government spending project, we find that 64% of the job-years created by 

government spending represents direct and indirect effects of the spending, 

and the remaining 36% represent induced effects. 
In estimating the job-years created by direct government spending, agencies 

will be asked to use the simple rule that $92,000 creates one job-year. This 

procedure is somewhat crude and does not take into account the obvious 

differences in wages and other costs across different types of projects and 

across different parts of the country. It does, however, take into account the 

key difference between tax changes or state fiscal relief, and direct government 

investment spending. The rule’s key virtue is its simplicity and conservatism. 

Because it is derived to be consistent with the macroeconomic jobs estimates, it 

minimizes discrepancies between the aggregate jobs estimates and those 

agency by agency. Also, since the main focus of the agencies will be on actual 

reporting of jobs created and retained, this simple procedure minimizes the 

resources devoted to the early job estimation. 

Table 5

Simple Rule for Estimating Job-Years Created by Government Spending

$92,000 of government spending creates 1 job-year 

64% of the job-years represent direct and indirect effects 

36% of the job-years are induced effects 

 

III. REPORTING ACTUAL DIRECT JOB CREATION

All recipients of recovery funds for government investment are required to 

report the jobs retained or created by the funds. These reports will provide 

information on the direct job creation and retention of this crucial piece of the 

ARRA. This information will be useful in the overall evaluation of the 

employment effects of the act. 
General Reporting Guidelines

OMB guidelines for reporting jobs created or retained are under review and will 

be released shortly. This report describes the general approach that will be in 

the guidelines. 

 Primary recipients are required to report an estimate of jobs directly 

created or retained by project and activity or contract. Grant recipients 

should report on the employment impact of sub-recipients. Recipients 

should not attempt to report on the employment impact on materials 

suppliers (so called "indirect" jobs) or on the local community ("induced" 

jobs). 

 A job created is a new position created and filled; a job retained is an 

existing position that would not have been continued were it not for 

ARRA funding. Only compensated employment should be reported. 

 The number of jobs should be expressed as "full-time equivalents 

(FTEs)," which is calculated as total hours worked in jobs created or 

retained divided by the number of hours in a full-time schedule, as 

defined by the recipient. 

 The number reported should represent a reasonable average of FTE’s 

created and retained for the quarter. Such an estimate would ideally be 

done by taking FTE’s for each pay period in the quarter and averaging 

them. It could also be done at a single point in time, as long as care is 

taken that the single point is representative of the quarter. 

 A brief description of types of jobs created or retained should be 

provided. 


Checks of Reported Job Creation

As the recipient reports are received, agencies, OMB and CEA will check the 

data for completeness and plausibility. This process will involve numerous 

steps, including: 

 Comparing reports of similar projects in different locations to identify 

obvious outliers. 

 Comparing recipient reports to other labor market indicators for the area. 

 Comparing recipient reports of job creation with estimates of 

expenditures and local wage rates to test for consistency. 

In cases where the results appear to be problematic, agencies will ask the 

reporting recipient for more information and, if necessary, revisions to the 

reporting methodology. 

Results of the Reporting Requirements

Once the jobs reports have been appropriately checked and revised if 

necessary, they will provide information on the jobs directly created or retained 

by the portions of the American Recovery and Reinvestment Act covered by the 

reporting requirements. We will thus have some independent documentation of 

jobs created or retained by the Act. 

While such independent documentation is immensely valuable, it is important 

to be aware of the limitations of the reported jobs numbers. Among the factors 

that need to be considered are: 

 The direct reporting requirements only cover about one-third of the 

recovery funds. The ARRA included roughly $271 billion in direct 

government investment spending. As described above, the rest of the 

fiscal stimulus took the form of tax cuts, state fiscal relief, and transfer 

payments to people directly hurt by the recession. There is no mechanism 

available for collecting data on actual job creation from these parts of the 

Act. 
 The recipient reports will show the number of jobs recipients retain or 

create. These are what are typically referred to as "direct" jobs. Some of 

the spending will go to the providers of materials, such as cement or 

asphalt for a road construction process. The reports will typically not 

have information on the jobs created at suppliers (so-called "indirect" 

jobs). The reports will certainly not have information on the jobs created 

throughout the community as employed workers buy other goods and 

services ("induced" jobs). Thus, the reports will only provide information 

on a fraction of the jobs that will be created even by the government 

spending portion of the Act. 

 There will likely be inconsistencies and measurement error across the 

individual reports. This limitation is present whenever thousands of 

recipients with very different types of projects are asked to provide 

information. The problem is heightened by the fact that the funds will be 

allocated in a wide variety of formats. Some will be managed by the 

federal government, some will be run by state governments, and some 

will be distributed and managed as grants. As a result, the level at which 

the job reporting is done and how far down the sub-recipient chain the 

reports go will be highly variable. This will likely cause some 

inconsistencies in the job reports, which must be anticipated. 

Because of these limitations, the reported jobs numbers will need to used with 

caution and as part of a more complex estimation strategy. 

IV CEA QUARTERLY REPORTS ON JOB CREATION

The ARRA requires the Council of Economic Advisers to report to Congress each 

quarter on the employment effects of the Recovery Act. The first report is due 

in August 2009 and will cover the full first quarter under the Act. While the 

methodology we will use to do this report will surely evolve as we gain 

experience and gather additional information, we anticipate using the following 

methods and approaches. 
First, it will be important to check the spending assumptions underlying our 

original estimates. The estimates assumed a certain timing pattern for when 

spending would reach recipients and when tax cuts would show up in 

household disposable income. Actual data on spending and tax cuts are being 

collected weekly by OMB and the Treasury. We will compare these data to our 

assumptions. We will then rerun our forecasting model using the actual, rather 

than projected spending and tax change data. 

Second, we will use the job data reported by recipients described in Section III 

to check and update our estimates. This procedure is more complicated than it 

might appear because of the limitations of the reporting data. The reports only 

cover direct jobs, whereas our estimation procedure currently does not separate 

direct and indirect job creation. For this reason, we will need to use extensive 

microeconomic analysis of the composition of typical government spending 

projects to estimate the breakdown of job creation into the amount occurring 

with the primary contractor and the amount occurring with suppliers. Once this 

is accomplished, we will compare our estimates of direct job creation based on 

the forecasting model with the reported direct job creation information. We will 

report new aggregate job estimates including the available reported data. 

Third, our analyses will include a number of important checks on the quarterly 

estimates. One macroeconomic check will be to compare aggregate measures 

of employment at the reporting date to a number of baseline forecasts (without 

stimulus) done at the time the act was passed. This is a way to quantify whether 

employment is higher than it otherwise would have been, and thus provides 

empirical rigor to the jobs estimates at the time of passage. Of course, many 

other macroeconomic developments will affect employment and could render 

the February baseline forecasts inaccurate. But, this is an exercise that should 

be done despite it likely large margin of error. 
A useful microeconomic check that we will do is to use detailed country-level 

employment data from the Bureau of Labor Statistics Quarterly Census of 

Employment and Wages. These data show detailed employment by industry for 

each county. For key areas where we have spending data isolated by county, we 

will use this to check both our estimates of jobs created and the direct reports. 

This county-level analysis can help show how much recovery spending 

increases employment in a sector overall versus how much reflects a shift of 

employment from private to recovery projects. 
APPENDIX

Multipliers for Different Types of Spending

For the output effects of the recovery package, we started by averaging the 

multipliers for increases in government spending and tax cuts from a leading 

private forecasting firm and the Federal Reserve’s FRB/US model. The two sets 

of multipliers are similar and are broadly in line with other estimates. We 

considered multipliers for the case where the federal funds rate remains 

constant, rather than the usual case where the Federal Reserve raises the funds 

rate in response to fiscal expansion, on the grounds that the funds rate is likely 

to be at or near its lower bound of zero for the foreseeable future. The 

multipliers for conventional tax cuts and spending increases are given in the 

table below. 

Output effects of a permanent stimulus of 1% of GDP (percent) 

 Government Tax 

Quarter Purchases Cuts

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

1.05 

1.24 

1.35 

1.44 

1.51 

1.53 

1.54 

1.57 

1.57 

1.57 

1.57 

1.57 

1.57 

1.57 

1.57 

1.55 

0.00 

0.49 

0.58 

0.66 

0.75 

0.84 

0.93 

0.99 

0.99 

0.99 

0.99 

0.99 

0.99 

0.99 

0.99 

0.98 
We applied these multipliers directly to the straightforward elements of the 

package. We made adjustments to the multipliers for elements that take the 

form of transfers to the states, the patch to the alternative minimum tax, and 

tax-based investment incentives. 

 For transfers to the states, we assumed that 60% is used to prevent 

spending reductions, 30% is used to avoid tax increases, and the 

remainder is used to reduce the amount that states dip into rainy day 

funds. Thus, we created a new multiplier that was a weighted average of 

the two above, with a weight of 0.6 on the spending multiplier and 0.3 on 

the tax multiplier. We assumed that these effects occur with a one 

quarter lag. 

 Because a patch to the alternative minimum tax was surely largely 

anticipated by the households affected, it is unlikely that this particular 

tax cut had the same impact as a fresh, permanent reduction in taxes. 

For this reason, we reduced the multiplier for this portion of the package. 

We created a new multiplier that was calculated as 0.5 times to 

conventional tax multiplier. 

 For tax-based investment incentives, we used the rule of thumb that the 

output effects correspond to one-fourth of the effects of an increase in 

government spending with the same immediate revenue effects. This 

implies a fairly small effect from a given short-term revenue cost of the 

incentives. But, because much of the lost revenue is recovered in the long 

run, it implies a fairly substantial short-run impact for a given long-run 

revenue loss. We confess to considerable uncertainty about our choice of 

multipliers for this element of the package.