The debate over how effective the Obama administration’s efforts have been at turning the economy around now seems to hinge on the question of whether saving a job is as good as creating one.
The answer is clearly yes. The worker who does not get laid off may or may not know that their job has been saved, but they do know that they’re still getting a paycheck and have not joined the unemployment queue.
But measuring jobs saved is not simple, especially because we cannot measure it directly. This has been pointed out by Harvard economics Professor Gregory Mankiw who has said, “there is no way to measure how many jobs are saved” and Allan Meltzer, professor of political economy at Carnegie Mellon University, who said that “One can search economic textbooks forever without finding a concept called ‘jobs saved.’ It doesn’t exist for good reason: how can anyone know that his or her job has been saved?”
But these economists overstate their case. We have the tools to show how policy has affected economic growth and job creation. We cannot perhaps say that a particular person’s job was saved or created, but we can show what would have happened had the government not devoted its resources to paving the way for job creation. To do this, we have to tease out whether the actual number of jobs we have is larger or smaller than what would have happened if there had been no such policy.
Recall just how dire the economic picture looked just a year ago. Job losses began in December 2007, with the economy shedding an average of 137,000 jobs each month through August 2008. Things got uglier as job losses rapidly accelerated. Our economy shed a record-breaking 741,000 jobs in January as President Obama was taking his oath of office. The gross domestic product fell by an annualized rate of 6.9 percent in the first quarter of 2009, the sharpest fall in 29 years.
A year later, the worst appears to be behind us and the great crash has been averted. Gross domestic product grew in the third quarter of 2009 for the first time in five quarters and the pace of job losses has slowed. The economy has shed about 180,000 jobs per month over the past three months—about a third of the jobs lost in the typical month during the winter of 2009.
Economic growth and slowing jobs losses are the direct result of government policies. When President Obama took office only a few tools were left in the toolbox to put the economy back on track. The Federal Reserve had already been working to contain the financial crisis for over a year and had dropped the federal funds rate down to effectively zero, leaving no more room for monetary policy to ease credit.
Increasing government spending was critical. President Obama signed the nearly $800 billion American Recovery and Reinvestment Act into law in February. The recovery package helped fill state coffers and avoided many lay-offs for teachers, police officers, and other public servants. Infrastructure projects sprouted up nationwide, repairing worn-out roads and building new ones.
These recovery dollars were a key factor in creating economic growth in the third quarter, rather than no growth at all. The Wall Street Journal quotes Jan Hatzius, chief U.S. economist for Goldman Sachs & Co. predicting that the U.S. economy would grow by 3.3 percent in the third quarter and that, “Without that extra stimulus, we would be somewhere around zero.”
This is consistent with the administration’s own findings. The Council of Economic Advisors shows that nearly $200 billion in recovery dollars were pumped into the economy by the end of October, which added roughly 2.3 percentage points to real GDP growth in the second quarter of 2009 and most likely added even more in the third quarter. They estimate that without the recovery package, the economy would have shed over a million more jobs than it actually did.
Over the past year, policymakers have taken often extraordinary steps to avert economic collapse and to stop the economy from hemorrhaging jobs. That has been successful. But even so, the economy crossed the threshold into double-digit unemployment in October, with unemployment now at 10.2 percent. Employers have slowed the pace of lay-offs—saving somewhere between 1.1 and 1.5 million workers from losing their jobs—but they have yet to begin hiring anew.
Stepping up policies that focus on job creation will all make a difference in generating job growth in the months to come. These should include filling in the budget gaps for state and local governments so they can avert job losses and maintain necessary services; focusing on direct job creation, especially for younger workers; and continuing investments in our infrastructure development and clean energy economy.
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