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Wednesday, September 16, 2009

The Assumptions of Job Counting

As we have discussed many times, the projected, estimated, or presumed job numbers put out by the White House in association with the stimulus are nothing more than politically motivated best guesses designed to provide support to a policy that is rapidly loosing public confidence.

Today, the Wall Street Journal runs a story supporting that claim (in a much more educated fashion):
As the $787 billion federal stimulus package was being deliberated by Congress in February, the White House estimated that the act would increase employment by 3.5 million jobs, including 24,000 combined in New Hampshire and Wyoming.

So far, though, those states say the stimulus has added fewer than 1,000 jobs.

Less than a month from now, when every state receiving stimulus funds will be required to make such a report, the numbers will fall far short of White House projections -- whether it's the original 3.5 million job projection or the latest estimate, issued by the White House last week, that one million jobs have been created thus far by the stimulus act.

The enormous spread between the states and the White House reflects how difficult it is to measure job creation and attribute it to a specific cause. The result, a hodge-podge of numbers, could accelerate criticism that the stimulus isn't doing enough to reduce unemployment.

"The problem with measuring things like this is enormous," says Robert Baade, an economist at Lake Forest College, who has worked on estimated economic impact from smaller initiatives such as new stadiums. He likens it to finding "a needle in an economic haystack" but says there are other forces at work on the estimates. "Some of these numbers are, let's face it, politically affected."

The most visible figures available to evaluate the job market are unemployment rates, which don't speak well for the stimulus package. The national rate of joblessness last month was 9.7%, up from 8.5% in March, the month after the stimulus act was passed.

A week after that number was released, the White House's Council of Economic Advisers reported that the stimulus had increased employment to a level by "slightly more than 1 million jobs higher than it otherwise would have been."

That awkward wording says a lot: It reflects the tough job facing any economist who tries to estimate job creation. In every method used, economists are forced to imagine an alternate reality -- one built on assumptions that are easily challenged. For example, to compare present unemployment rates to past rates may be straightforward but it fails to account for other economic forces that were going to affect unemployment with or without the stimulus.

The White House method assumes that things were getting worse and that the stimulus is the sole factor responsible for stopping the bleeding. So economists imagined an alternative reality whereby the present would have been much worse -- to the tune of one million more lost jobs.

Next month the states will release their own numbers, as mandated by the act. And they'll use much more conservative methodology that doesn't invoke a parallel universe.

That method is the Office of Management and Budget guidelines to count jobs. To account for the cumulative bump in employment, the OMB calls for states to calculate hours of work funded by the stimulus act. Then states must take that number and divide it by 40, for a normal work week, and by the number of weeks since the act was passed. So jobs just added last week count much less than those added in the first month after the act was passed.

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