Only 23 percent of the 8,381 companies we were able to contact in our sample hired new workers to complete their stimulus project and kept all of them once the project was done. In other words, more than seven out of 10 companies did not hire workers at all or had to lay off the workers they did hire.
Of course, this is only microeconomics. Macroeconomics tells you that the stimulus injected money into the economy, and therefore it increased employment. The employment increase would not necessarily show up at companies that were the initial recipients of the money.
I’m not being entirely sarcastic. There simply is no reliable way to demonstrate how well the stimulus worked. I do not think that this study refudiates the stimulus.
For those of you new to this blog, I do not subscribe to the Keynesian story, in which spending creates jobs and jobs create spending. I think that comparative advantage is what creates jobs. To put it more carefully, comparative advantage creates the opportunity for people to sell labor and buy goods and services in the market. Entrepreneurs who identify these opportunities create jobs.
In today’s economy, I believe that the link between spending and jobs is weak. That is because, as Garett Jones put it, today’s workers do not build widgets. They do something fuzzier, which Jones terms creating organizational capital. Whether you like that term or not, I think it is fair to say that there is a large element of investment in a hiring decision these days. You do not want to hire a worker unless you are confident that the time you spend training and acclimating the worker to your company will be repaid in the form of a more effective enterprise. You do not want to let a worker go unless you are confident that the worker adds so little to the effectiveness of the enterprise that you would be better off not having to compensate that worker.
In 2008, the reluctance to fire surplus workers went away, and the reluctance to hire possibly-useful workers increased a bit. So a lot of the decade’s job destruction got telescoped into a short period of time. Why have new jobs not been created? Some possibilities:
1. Firms in 2008-2009 did a very good job of discriminating between useful and less-useful workers. The ones they let go were less useful. There has been some back-and-forth between Bryan Caplan and Tyler Cowen suggesting that this has turned the long-term unemployed into a “lemons” market.
2. The choice of “going on disability” has become attractive.
3. The “wedge” between wages and compensation has gone up (think of employer-provided health insurance).
4. Firms that have developed popular goods and services no longer expand by rapidly ramping up employment. They can increase production by using overseas suppliers and automated manufacturing. They can increase sales by using online channels rather than hiring sales clerks.