In my original post I looked at job creation in the first year under various stimulus scenarios. Now I thought I would discuss job creation over both years of the stimulus and compare it to what is needed.

Looking at the first year of an $800 billion Obama stimulus, I calculated 2.81 million jobs created with the first $400 billion in the first year. Spending under this projection would be $400 billion also in the second year but the assumptions are not the same. A segment of the second year’s money is needed to maintain the employment of people hired as a result of the first year’s spending. I will make the very generous assumption that a maintained job requires only half as much money ($70,000) as a new job ($140,000).

Cost for jobs maintained in the second year of an Obama stimulus:

2.81 million jobs x $70,000 = $196.7 billion

So money available for new jobs in the second year:

$400 billion – $196.7 billion = $203. 3 billion

Keeping the original 58/42 split between spending and tax cuts:

$203.3 billion x .58 = $117.9 billion
$203.3 billion x .42 = $85.4 billion

Using the following stimulative multipliers for spending and tax cuts:

$117.9 billion x 1.4 = $165.1 billion
$85.4 billion x .4 = $34.2 billion

Total stimulative effect:

$165.1 billion + $34.2 billion = $199.3 billion

New jobs created in the second year (using 140,000 per job as in the first year):

$199.3 billion / $140,000 = 1.42 million jobs

Total jobs created over both years is then:

2.81 million + 1.42 million = 4.23 million jobs

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Let’s look now at my high end $700 billion spending with its 90/10 split between spending and tax cuts. In its first year, it created 6.5 million jobs. Repeating the calculations.

Cost for jobs maintained in the second year:

6.5 million jobs x $70,000 = $455 billion

So money available for new jobs in the second year:

$700 billion – $455 billion = $245 billion

Keeping the original 90/10 split between spending and tax cuts:

$245 billion x .9 = $220.5 billion
$245 billion x .1 = $24.5 billion

Using the following stimulative multipliers for spending and tax cuts:

$220.5 billion x 1.4 = $308.7 billion
$24.5 billion x .4 = $9.8 billion

Total stimulative effect:

$308.7 billion + $9.8 billion = $318.5 billion

New jobs created in the second year (using 140,000 per job as in the first year):

$318.5 billion / $140,000 = 2.28 million jobs

Total jobs created over both years is then:

6.5 million + 2.28 million = 8.78 million jobs

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Now we come to the question how many jobs do we need? There are a couple of ways of looking at this. Bush job creation was very poor and for much of his time in office the paper economy covered up how bad a job on jobs he was doing and how hollowed out the real economy was becoming. In addition to job losses, we also have to consider that the population is always increasing and new jobs are needed to meet these increases. So even if everybody who is employed stayed employed more jobs would be needed for new entrants into the work force. A realistic number for those entering the work force is around 120,000 a month or 1.44 million a year. Over the 8 years of the Bush Presidency, this would have meant an increase of 13.8 million jobs just to stay even. Bush managed to create a total of 2.1 million jobs. So the hole we have in jobs beginning Obama’s term is very large: 11.7 million.

We can also look at the job situation since the recession began in December 2007. We have lost 3.6 million jobs since then and in the coming months we are likely to lose many more. For the purposes of this discussion, let’s say that Obama’s stimulus or another kicks in fast and only a further 1.5 million are lost. That is a total job loss of 5.1 million, but it is not the whole story. As I said before, there are always those entering the workforce. Counting 2008 and the two years of the stimulus that is a further 4.32 million jobs needed. So our total job deficit from December 2007 to the end of the stimulus (which for purposes of the current discussion I’m saying is January 2011, i.e. all of 2008, 2009, and 2010) is 9.432 million.

To recap, an Obama stimulus would create around 4.23 million jobs, far short of what is needed. My high end scenario at 8.78 million jobs gets us considerably closer to what is needed but even it falls short. The job deficit could be made up by increasing spending by some $65 billion in the second year bringing the two year cost of this stimulus to $1.465 trillion (compared to the $800 billion Obama stimulus). You can vary the parameters and come up with somewhat different results, but what is important to keep in mind is that they will still look something like these. The take home lesson here is that the Obama stimulus doesn’t cover normal growth in the workforce over the years 2008 through 2010, let alone jobs lost due to the recession. My high end model meets with a little modification both targets.

My caveat as always is that these numbers should not be considered as carved in stone but more a general indication of what direction we need to go.

Hugh

Hugh

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