The Impact of ARRA Funds on Employment (Part 2)

The Impact of ARRA Funds on Employment (Part 2)

Published on November 2, 2009

Sergio portrait
Policy Director

The White House reported over the weekend that 17,597 jobs have been “created or saved” in Puerto Rico thanks to the impact of federal stimulus spending in the island. According to this report, Puerto Rico has been awarded $1,936,135,565 in federal funds under the American Recovery and Reinvestment Act of 2009 (“ARRA”), of which $200,030,374 have been “received”, and thus presumably spent.

Now, there are several reasons to be skeptic about the accuracy of this report.  First, if only some 10% of the total funds awarded has been spent, then, it is at best an exaggeration and at worst downright misleading, to calculate a figure of jobs created/or saved based on spending the total amount awarded so far.

Second, according to an op-ed piece in the Wall Street Journal written by Edward Lazear, a former chairman of the President’s Council of Economic Advisers, the jobs data “were collected from responses by government agencies that received federal funds under the American Recovery and Reinvestment Act of 2009.  Agencies were required to report an estimate of the number of jobs created and the number of jobs retained by the project or activity.”

Under this system, “recipients have strong incentives to inflate their reported numbers.  In a race for federal dollars, contractors may assume that the programs that show the most job creation may be favored by the government when it allocates additional stimulus funds.”  So, there exists a strong bias for overstating or over-reporting total job creation.

Third, the federal data does not report net job creation, that is, total jobs created less total jobs lost in the economy.  The federal government, according to Lazear, “wants us to believe that the new hires came from the pool of the unemployed and that they are net additions to the stock of employed workers. But the data do not speak to the number of workers who left their current jobs to fill government-sponsored jobs.”  The federal government, in other words, is only reporting the positive gross figure but not the relevant net jobs figure.  Thus, it is impossible to know with certainty the impact of the stimulus on the job market with the data reported.

Finally, the data released by the federal government is inconsistent with local data about Puerto Rico’s economy.  According to data from Puerto Rico’s Labor Department a net total of 97,000 jobs have been lost in the island between September 2008 and September 2009.  The Government Development Bank’s index of economic activity has declined by 4.8% during the same period.  Other data about the real economy, such as construction permits, home sales, and retail sales, are also down significantly during this period.  The island’s unemployment rate is 16.4% and continues to rise.  As of September 2009, the unemployed and their dependents make up about a fifth of the entire 16 and over population of Puerto Rico.  Therefore, we doubt many Puerto Ricans will find anything to cheer about those 17,597 jobs “created or saved” through the expenditure of ARRA funds.