Understanding Employment (or Obama and the 2.5 or 3 or 4 or [update] 3.5 million jobs)

President-elect Obama’s economic team says that he was developing a plan that “would save or create nearly four million jobs”.  Four million jobs is a large number; this essay will try to explain how large. (Note: earlier, Obama said his plan would “save or create at least two and a half million jobs”; later Obama used the number 3 million). [Note: As of February 12, with the final version of the stimulus bill, the number is now 3.5 million jobs; I will update the table when I find a revised report from Obama's economists.]

Depending on how you measure employment, as I write in January 2009, there are around 140 million jobs in the United States.  Calculating the number of jobs is not as simple as it seems; the labor force is constantly changing, with some people leaving school and entering the labor force while others go back to school or retire, people being hired and fired and some people holding multiple jobs.  The Bureau of Labor Statistics calculates two measures of employment, the household measure (derived from a survey of households) and the establishment data (derived from a survey of employers); see this essay for more information on how the data are assembled.

Obama’s economic team use the payroll data (see here for their report).  As of the end of December, the BLS estimated that businesses employed 135,489,000 workers (what the Obama advisers call “payroll employment”).  They estimate that with the Obama stimulus plan, employment will rise to 137,550,000, resulting in an increase of roughly 2 million more jobs; but without the stimulus, employment would only be 133,876,000, so the Obama plan results in almost 4 million more jobs than would otherwise be the case.

The Obama team presents these numbers as the result of forecasts of what will happen without the stimulus compared to what will happen with the stimulus.  Here are the job data for the last five recessions and the estimates for the current recession:


Recession Start First 12 months Next 12 months Next 12 months
November 1973 +350 -580 +2558
January 1980 +231 -474 -1576
July 1981 -2084 +915 +4348
July 1990 -1539 +476 +2247
March 2001 -2080 -524 +877
December 2007 no stimulus -2589 -807 [est] -806 [est]
December 2007 with stimulus -2589 +1030 [est] +1031 [est]

Change in Payroll employment measured in thousands of workers.

To review the history of the recessions of the last 40 years; during every recession there was some stimulus, usually a combination of Fed rate cuts and an increase in the budget deficits. The Congressional Budget Office is already forecasting that the budget deficit in 2009 will be 8.3%, the largest deficit in the last 60 years.

The Obama team is forecasting that the recession that started in 2007, without the Obama stimulus, will be the worst recession in the last 40 years in terms of job loss, even with the large budget deficit and the aggressive rate cuts that the Fed has already made. They forecast larger job losses during the period after the recession started than has occurred in the last five recessions.  But economic forecasts are not 100% accurate; for example, it was only a nine months ago that candidate Obama was in favor of raising taxes when he took office although he noted that “we don’t know what the economy’s going to look like at that point.” At this point his team seems much more certain about where the economy will be in a few years.

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