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Simple analysis of cost per job saved from stimulus
Simple analysis of cost per job saved from stimulus. Created by Sal Khan.
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His analysis is correct. He is stating a fact - cost per job. You can decide, based upon what your perception of what was produced by those jobs, whether there was value in it. But when you do your analysis, consider also what was not produced as a result of that money being siphoned out of the private sector (whether by direct taxation or by a crowding out effect in the credit market). Which $230k/year job is going to produce more value, a government bureaucrat or a private sector engineer?(14 votes)- Ray, of course it comes out of the private sector. The stimulus is taxpayer money, which now has an opportunity cost for not being used in something else. So, if the purpose of collecting money from the private sector is to repackage and send it back (now called a stimulus), why taking it from the private sector in the first place? And I am even ignoring the transaction costs (corruption costs) and assuming that every 1 USD in tax collected will go back as 1 USD to society, while in fact we know there is a lot of leakage within government. That is the key question! Does this make any sense? This represents the unreasonable logic of Keynesian economics which politicians love, because it gives them the prerogative to engineer society and justify their jobs (artificially of course).(6 votes)
- I don't know if I quite understand this video. I thought the stimulus spent money. So, my understanding of what the speaker is trying to say is that 230,000 and 540,000 was spent or given back to the tax payer to save jobs. This sounds like a lot of money to me. However, if this is just a one-time cost, when spread out across fiver years, it really isn't that much. For the 230,000 spent, the loss would be recouped by a job paying just $46K per year. The tax savings jobs would have to pay out $108K/ year, about what my husband earns, to recoup any loss, but remember there were less $108K jobs than $46K ones. Here is my question. Was this money spent to retain a job or was this money saved and funneled back into the economy because a worker was retained?(2 votes)
Susan, I worked for the federal government before, during, and after the stimulus. My team and I were responsible for generating values for 'jobs created or retained' and 'private investment leveraged' for all Department of Commerce programs. Perhaps I can help a bit. First, 'jobs created of saved' is pretty hard to determine because there is no control, or non-stimulus group identical to those that received the funds. Most the the projects funded were re-purposed - remember the funding was for 'shovel ready' projects. Given the lead time (engineering, environmental and historical clearance etc), most, if not all, the projects funded were already planned. 'Jobs created or retained' projections were added by grant applicants - this is what I mean by re=purposed. If evaluated by t method you suggest, tax revenues from all sources (federal, state, local; income, sales, property tax), the stimulus 'investments' do not pass muster. Finally, the theoretical basis for the stimulus is Keynesian - in English that means government borrows money to fund public works (primarily). People are employed directly and, as they spend their earnings, others are employed indirectly. This was the idea behind much of the New Deal. Unfortunately, construction practices and the US labor force have changed considerably. Most construction jobs from that period have been replaced with equipment (my grandmother was a hod carrier during the Depression) and our labor force is not as heavily agricultural (people who have office jobs have neither the physical ability nor the skills for construction work). However, after being summoned to a meeting at OMB, DoC, and all other departments, were informed that stimulus results would be the exclusive province of OMB. We were directed to conform our results to their reports. The outcome is well described in the Khan Academy unemployment rate primers. Hope this helps. Bill Kittredge(4 votes)
Why did Sal not include the value of the spending itself, beyond its benefits in creating jobs. Obviously, the primary purpose of government spending, as with any spending, is the direct benefit that it creates in terms of investment in infrastructure or investment in research. Job creation, whether through stimulus or usual spending, is merely an indirect effect. In other words, stimulus spending is more than jobs created or saved, it is bridges built, students educated, and research conducted. That should not have been left out of this video.(3 votes)- How long do these jobs last? Is it $230,000 and $540,000 per year or over a period of 5 or 10 years?(2 votes)
- If I get a chance to look into the policies more, I'll try to answer my own question. I think Sal was trying to make us think a little bit about the efficiency of the money we were spending as a starting point to think about government spending. Other interesting things to look at would be:
- Even though they've created 650,000 jobs, did they "save" any jobs that would have otherwise been cut?
- Were we only saving these "really good jobs"? Is Sal implying that we saved more bankers than teachers?
- Was the cost of benefits included? Payroll taxes, employer deposits into retirement funds, and medical insurance would definitely push up the cost of jobs.
- Have we looked at the indirect benefits of keeping people employed? Can we quantify those benefits?
- What would have been the marginal cost of creating more jobs?
I think the policy is the American Recovery and Reinvestment Act of 2009. I might look it up on Thomas.gov. Really interesting discussion. Thank you for responding.(2 votes)
- It seems the stimulus does not affect the lower classes or even lower middle class jobs?(1 vote)
- Look at his calculations is it cost the tax payers $230k and $530k to save each of these jobs. Not a very effective investment by the government. Considering these jobs were probably paying closer to the median income as they were construction related work. Yes we have newly paved roads and bridges but are they permenant jobs? How many of the 1 million individuals still have a saved job?(1 vote)
What is the difference between disguised unemployment and unemployment(1 vote)
so 230,000 for a job really? thats not realistic... where did the other money go? In the wallets of the employers?(1 vote)- In my town the shovel ready project was to dig up the two year old asphalt streets, heat them, add some asphalt, then roll them back out. Wages mostly went to illegal aliens. Some skim from the contractors company, the city inspectors, the city purchasing department. Taxes paid by the contractor, but probably not by the illegal aliens, though withholding for the illegals as if they were legal.(0 votes)
Your figures assumes that these jobs are one year assignments. If shovel ready projects were 5 year assignments then you would be looking at 230k / 5 = 46k which is provably closer to reality. I'm not a fan of stimulus but it does give some people some HOPE and that I think is the main benefit. My question is 'isn't this a little biased (or Trumpish) ' video?(0 votes)
Video transcript
There's some news out today
about how many jobs, or at least a claim of how many jobs,
have been created so far from the stimulus plan. And at first, the numbers
look impressive. The administration said that
650,000 jobs were created from $150 billion of stimulus
spending so far. So let me write that down. So what does that turn out
to on a per-job basis? Let's see, let's get a
calculator out here. If I spent $150 billion to get
650,000 jobs-- let me just divide by 650,000-- I get
to $230,000 per job. So that is equal to $230,000
per job, which is claimed to be saved. So obviously, they're not just
outright paying the salary, these people were adding some
value to begin with. So these were clearly
very good jobs. So $230,000, I think it's fair
to say, is more than the majority of us make. So these are very good jobs. Now, there's a further claim
that at least another 350,000 jobs were created from $189
billion of tax relief. We got $189 billion less to
the government and that created 350,000 jobs. So let's see what that
turns out to be. That's $189 billion
in tax relief. Let's see what that is
on a per job basis. Get the calculator out. And so, if we have $189 billion,
so you divide that by 350,000 jobs. And you get $540,000 per job. So this is equal to $540,000 per
job, which are even better than the $230,000 jobs
that we were able to save with $150 billion. So clearly some very highly paid
people are being able to keep their jobs by virtue
of the stimulus package.