Estimates of the Effects of the American Recovery and Reinvestment Act

Support programs for low-income households and infrastructure spending were highly expansionary, while grants to states for education do not appear to have created many additional jobs.

In Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act (NBER Working Paper No. 16759), James Feyrer and Bruce Sacerdote find that support programs for low-income households and infrastructure spending were highly expansionary, while grants to states for education do not appear to have created many additional jobs. Their estimates of the effect of the stimulus that exclude education spending suggest a per job cost of under $100,000. Including education costs produces an estimate of one additional job created for every $170,000 in stimulus spending.

Feyrer and Sacerdote note that direct evaluation of the impact of the American Recovery and Reinvestment Act (ARRA) is difficult. To overcome some of that difficulty, they focus on how state and local stimulus spending, which varied among the states and over time, affected employment. They further disaggregate spending by federal agencies into three types: agencies providing block grants to fund local government employment, including spending by the Departments of Education and Justice used to fund teachers and police; support to low-income families, including spending by the Departments of Agriculture, Health Education and Welfare, and Housing and Urban Development, a large component of which was food stamps, Medicaid, and rental assistance; and paying for new infrastructure projects, especially through building projects funded by the Departments of Transportation and Energy.

Feyrer and Sacerdote first examine the overall change in employment over the sample period against the overall quantity of stimulus spending at the state level. Next, they do the same at the county level. Finally, they examine month-by-month spending at the state level and generate impulse responses of employment to the state-level spending changes. The county-level employment and earnings are from the Quarterly Census of Employment and Wages.

The researchers conclude that, despite the somewhat mixed results, the stimulus seems to have been effective. Most interesting perhaps is how the impacts on employment appear to differ by type of spending. The low impact of transfers to the states to support education and law enforcement is consistent with the possibility that states consider those grants to be temporary and therefore do not make permanent changes based on the transfers. States instead may have used the money to lower borrowing or to limit tax increases.

--Matt Nesvisky