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

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  • William D. 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.

Suggested Citation

  • William D. Dupor, 2013. "Creating jobs via the 2009 recovery act: state medicaid grants compared to broadly-directed spending," Working Papers 2013-035, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2013-035
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    References listed on IDEAS

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    1. Daniel J. Wilson, 2012. "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 251-282, August.
    2. 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.
    3. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," NBER Working Papers 19499, National Bureau of Economic Research, Inc.
    4. Mulligan, Casey B., 2012. "The Redistribution Recession: How Labor Market Distortions Contracted the Economy," OUP Catalogue, Oxford University Press, number 9780199942213.
    5. 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.
    6. Gramlich, Edward M, 1979. "Stimulating the Macro Economy through State and Local Governments," American Economic Review, American Economic Association, vol. 69(2), pages 180-185, May.
    7. David F. Bradford & Wallace E. Oates, 1971. "The Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, Oxford University Press, vol. 85(3), pages 416-439.
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    Cited by:

    1. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?," NBER Working Papers 23577, National Bureau of Economic Research, Inc.
    2. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.

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    Keywords

    Fiscal policy ; Job creation;

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