Was it Worth the Price? New Study Examines ‘Stimulus’ Dollars and Whether the Record Spending Create New Jobs and Hired the Unemployed

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Photo: Emily Metcalf

BY MALIA ZIMMERMAN – The Mercatus Center released a study August 30 that examines whether the billions of “stimulus” dollars spent through the 2009 American Recovery and Reinvestment Act actually created jobs and went to hiring the unemployed.

The report by Mercatus Scholars Garett Jones and Daniel M. Rothschild examines “one of the largest peacetime fiscal stimulus packages in American history” to see how businesses and workers responded to the incentives in the bill.

After surveying hundreds of firms, non-profits, and local governments receiving stimulus funding, they found that just 42.1 percent of the workers hired after January 31, 2009, were unemployed at the time they were hired. Instead they were hired away from other firms and businesses. They also found no evidence that funds were successfully targeted at areas of the economy with high unemployment.


More than 1,300 anonymous, voluntary responses from managers and employees were collected to find out what happened at the businesses and organizations that received ARRA contracts.

In this “bottom-up study”, the first of its kind, businesses were asked: “Were new workers mostly hired from the unemployment lines or did they get poached or raided from other organizations? Did workers game the unemployment insurance system by waiting until benefits ran out before taking a job? Did Davis-Bacon prevailing wage laws force organizations to pay above market wages to new hires?”

The authors say some of the results are “surprising.” Some of their findings include:

  • ARRA funds led businesses to hire and retain workers, however it was difficult to tell whether they were part-time or temporary jobs because the “in-person interviews indicated companies frequently included parttime and temporary jobs in reported job totals.”
  • The authors point out that “hiring isn’t the same as net job creation.” They found that just 42.1 percent of the workers hired after January 31, 2009, were unemployed at the time they were hired. “More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%). Thus, there was an almost even split between “job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed,” the authors said.
  • There stimulus funds were poorly targeted, the authors assert, because “there was no tendency for stimulus funds to go to organizations that found it easy to hire good people.”
  • There was no unusual tendency to take jobs right around the time of UI benefit expiration, the authors said.
  • Organizations were required to pay prevailing wages. An estimated 38.2 percent thought that they could have hired workers at wages below the Davis-Bacon prevailing wage while another 17 percent were unsure. “This meant higher costs for the federal government and fewer jobs created,” the authors said.
The federal government borrowed almost $900 billion in stimulus funds and distributed it to the states.

A Hawaii Reporter analysis found that while Hawaii was allocated $1.8 billion in stimulus funds – and spent $1.3 billion of those funds to date –  just 2,046 jobs were created. That is at a cost to taxpayers of $650,000 per job. State officials and Hawaii’s congressional delegation did not want to comment on this finding.

Ed Kemp, a CPA who sits on the Hawaii Stimulus Oversight Commission, said is concerned about the spending and lack of results. “This money is not from our taxes or any other sources. It was borrowed, and it will have to be repaid by future generations,” Kemp said.
Kemp compares the spending to taking money from his granddaughter’s piggy bank and said this is “unfair to people who have no voice in making those decisions.”