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Creating jobs via the 2009 recovery act: state medicaid grants compared to broadly-directed spending

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  • William Dupor

Abstract

Researchers have used cross-state differences to assess the jobs impact of the 2009 American Recovery and Reinvestment Act (the Recovery Act). Existing studies find that the Act's broadly- directed spending (i.e. excluding tax cuts) increased employment, at a cost-per-job of roughly three to five times that of typical employment compensation in the U.S. Other research finds that a particular component of the Act -emergency Medicaid grants to states -created jobs at a cost of 12% to 20% that of broadly-directed spending. This paper shows that these dif- ferences across the components' impacts can be explained by omitted variables in the existing work on the emergency Medicaid grants. Adjusting for the omissions, the jobs effect of the Act's Medicaid grants becomes substantially weaker. The omissions are: (i) not controlling the degree of (non-Recovery Act) federal dependency, (ii) not duly controlling for pre-Act housing and labor market conditions, and (iii) not conditioning on Recovery Act funding beyond that from the Act's Medicaid grants. Adjusting for any one of these omissions, by itself, results in a substantial increase in the cost of job creation and/or no statistically significant jobs effect.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2013-035.

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Date of creation: 2013
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Handle: RePEc:fip:fedlwp:2013-035

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Keywords: Fiscal policy ; Job creation;

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  1. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment benefits and unemployment in the Great Recession: the role of macro effects," Staff Reports 646, Federal Reserve Bank of New York.
  2. Gramlich, Edward M, 1979. "Stimulating the Macro Economy through State and Local Governments," American Economic Review, American Economic Association, vol. 69(2), pages 180-85, May.
  3. Mulligan, Casey B., 2012. "The Redistribution Recession: How Labor Market Distortions Contracted the Economy," OUP Catalogue, Oxford University Press, number 9780199942213, September.
  4. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
  5. John F. Cogan & John B. Taylor, 2012. "What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package," Book Chapters, in: Lee E. Ohanian & John B. Taylor & Ian J. Wright (ed.), Government Policies and the Delayed Economic Recovery, chapter 5 Hoover Institution, Stanford University.
  6. Bradford, David F & Oates, Wallace E, 1971. "An Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, MIT Press, vol. 85(3), pages 416-39, August.
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