How Can the Stimulus Bill Alleviate Unemployment?

Includes: DIA, SPY
by: Casey Mulligan

The stimulus bill reminds me of Kindergarten Cop -- Schwarzenegger's movie when he plays a cop who goes undercover as a kindergarten teacher, and ultimately quits his policeman job to teach kindergarten on a permanent basis.

This recession has brought employment down over six million. By industry, these losses are disproportionately in construction and manufacturing. By region, these losses are disproportionately in Nevada, California, Arizona, Florida, and other housing cycle states.

Although I do not agree with it, a reasonably coherent theory that says that the government can raise employment by hiring idle resources. So, in this recession, an effective way to raise employment would be to create jobs in those industries and regions with people without work (whether raising employment passes a cost-benefit analysis is another story).

The stimulus bill does not do that. Instead, it spends a lot in industries and regions with few if any employment losses.

Econbrowser now claims that the stimulus bill can be effective, because unemployment rates are high (whatever that means) in health care and education. Let's take a look at employment changes Dec 2007 - June 2009 (millions) by industry:

  • Total nonfarm payrolls: -6.5
  • Construction: -1.3
  • Manufacturing: -1.9
  • Education and Health: +0.7

How exactly is fiscal policy going to create 3.5 million jobs by primarily hiring people in education and health? I see only two scenarios, both absurd and/or dishonest:

  • The construction workers become kindergarten teachers. As I see it, Kindergarten Cop was just a movie, and in reality changing occupations as efficiently as did Schwarzenegger will not happen in the time frame of this recession.
  • The people in construction and manufacturing stay unemployed, and vast numbers people in education and health delay their retirements, forgo maternity leave, or come out of retirement. Without commenting on the likelihood of this scenario, I'll just say that it renders the stimulus bill dishonest: America was lead to believe that those suffering from this recession would be helped, not that those in secure jobs would be over-worked.