Bang for the Buck in the American Jobs Act

Recently, a somewhat misleading estimate of the cost of the nearly 2 million jobs that independent economists estimate will be created by American Jobs Act has been making headlines, so we’d like to set the record straight. These calculations purport to show the “cost per job” created by the bill, by simply dividing the cost of the bill by the estimated jobs created next year.  While this calculation might seem intuitive, it provides a misleading picture of the American Jobs Act and its economic impact.

First, as Secretary Geithner highlighted in a visit to a UPS facility in Louisville, Kentucky on Monday, in addition to supporting good middle-class jobs, the investments in the American Jobs Act also create real economic value.  It helps pay for the cost of materials for rebuilding roads and bridges or modernizing schools. It provides tax cuts that go towards new investment by small businesses or new purchases by families. We can all agree that improving the quality of our schools and our infrastructure or providing small businesses with the incentives and resources to expand strengthens our economy and its competitiveness. Simply dividing the cost of the bill by an estimate of the number of jobs created ignores these economic benefits. In addition, these calculations focus on the jobs impact in one year alone, and evaluate it against the cost of the entire bill. While the package is designed so that there is the strongest boost in 2012, there is a job creation impact beyond then, which these calculations don't take into account.

What’s more, these calculations fail to take into account the impact of getting people back to work now. Helping Americans get back to work not only reduces the costs of publicly funded programs like Medicaid and food stamps, it also reduces the potentially significant long-term costs to the economy of having people out of work for extended periods.

The reason that numerous independent analysts have projected that the American Jobs Act would have a significant impact on both employment and economic growth in the coming years is because it includes a set of proposals that are cost-effective at promoting job creation. Indeed, many of the measures in the American Jobs Act – from tax cuts for hiring new workers to providing support to prevent teachers from being laid off – are among those that the independent Congressional Budget Office estimated would have the biggest “bang for the buck” in spurring growth and employment.  That is why one private-sector forecaster (Macroeconomic Advisers) concluded that the American Jobs Act was designed to be “timely, temporary, and targeted to areas of immediate need.” At the same time, the bill is fully paid for – ensuring that, as the economy strengthens, we take the steps we need to reduce our deficit and get our fiscal house in order.

We all agree that we need to do more than just recover from this economic crisis.  We need to rebuild the economy by jumpstarting growth in the short term and building a stronger foundation for the long term.  We can’t stand on the sidelines and simply hope for the best. That is why we need to work together and pass the American Jobs Act on behalf of our economy and the American people right away. 

Brian Deese is the Deputy Director of the National Economic Council
Related Topics: Economy, Kentucky
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