If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Main content

Simple analysis of cost per job saved from stimulus

Simple analysis of cost per job saved from stimulus. Created by Sal Khan.

Want to join the conversation?

  • blobby green style avatar for user glandjm
    I am normally very impressed by Sal's lectures, but this laughably simple analysis misses some major points. Just because $150 billion was spent on 650,000 jobs does not mean that each of those employees earned $230,000. How much does it really cost to provide a job? There is a cost for employees to be at work (office, desk, lights, secretary if high enough in corporate ladder). That's just for them to be at work, what about what they actually work on? I think Sal is missing a lot here!
    (10 votes)
    Default Khan Academy avatar avatar for user
  • blobby green style avatar for user justin.muncaster
    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)
    Default Khan Academy avatar avatar for user
    • blobby green style avatar for user dtmoura
      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)
  • blobby green style avatar for user nextphaseenterprises
    I agree this does not mean each job paid a salary equal to the cost of creating it. It looks to me that it shows that expenditures directed at job creation via infrastructure improvements and development, i.e., building and maintaining things, are much more cost effective than tax cuts at creating jobs, right?
    (12 votes)
    Default Khan Academy avatar avatar for user
  • This video implies that the stimulus only saves a job for one year. Is there any data that shows how long a job is actually saved for? If so, you should divide the $230,000 per job by that amount of time. For example, if a job is saved for 10 years, that turns out to only be $23,000 per job per year, which isn't nearly as impressive as the $230,000 a year job this video is implying.
    (10 votes)
    Default Khan Academy avatar avatar for user
  • blobby green style avatar for user steveandkimkay
    Sal, clearly you are an extraordinarily bright individual, which is why I'm perplexed at your simplistic analysis of the stimulus. First of all, I notice that the claim is regarding new jobs created. How about existing jobs that would have gone away without the stimulus? How many of those were there? Secondly, the stimulus was not an income transfer program. The jobs that were created/saved presumably came with a public good, such as infrastructure improvements. Where is this accounted for
    (3 votes)
    Default Khan Academy avatar avatar for user
    • blobby green style avatar for user Jennifer
      When there is a legitimate public good, the private sector has consistently found a way to fund it much more economically and effectively. This was big government getting bigger, picking winners and losers, while depriving the already-struggling private citizens of the country of their hard-earned money, which would have been better used by those individuals who earned it and knew best how to spend it for the "public good."
      (3 votes)
  • blobby green style avatar for user Susan Hejhal
    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)
    Default Khan Academy avatar avatar for user
    • spunky sam blue style avatar for user William P Kittredge
      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)
  • leaf green style avatar for user DRB
    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)
    Default Khan Academy avatar avatar for user
  • leaf green style avatar for user Erin Mansfield
    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)
    Default Khan Academy avatar avatar for user
    • leaf green style avatar for user Erin Mansfield
      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)
  • blobby green style avatar for user Rich Yu
    The government cash for clunkers program essentially encouraged people to spend money on depreciating assets that add nothing to a country's capital regenerative capacity nor their own personal capital generation. If anything it made the overall credit crisis worse, in my opinion.

    Statistics from graphs on the following site:
    www.bmonesbittburns.com/economics/focus/20090724/feature.pdf
    (2 votes)
    Default Khan Academy avatar avatar for user
  • blobby green style avatar for user ashaw2
    Mr. Khan's explanation is too simplistic. In any project, out of the total cost, only a fraction goes into actual payroll cost. To give a simple example, I know of an incubator of 10-15 engineering service type companies in a mid-western city. These companies together reported $8 million in total revenue one year. Out of this total, around $4 mil was salary for 85 service jobs. So, the salary cost was $46K per person. This incubator had no relation with stimulus, but this example shows that divi
    (1 vote)
    Default Khan Academy avatar avatar for user

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.