Don't Get Too Excited About Job-Creation Plans

Friday's jobs report was the latest piece of evidence that the employment market is in rough shape. Even if the report were not quite as bad as the zero-jobs-added headline implied, it still paints a stark picture of how much further the economy has to go before we are anywhere near full employment.

So far, we've seen a number of government programs designed to try to combat some of the job losses and reduce the pain. Payroll tax cuts, extension to unemployment insurance, and, most visibly, the $787 billion stimulus package passed in 2009. Next week, President Obama will address a joint session of Congress laying out more plans to spur job creation again. We don't know yet exactly what he will propose, or what Congress would be willing to pass, but given the hype around the speech, the President is obviously hoping for a bold plan.

However, will these new ideas, or the ones we've already tried, actually work? Gauging the success, or failure, of these programs is extraordinarily difficult. We can't observe the counterfactual world in which these programs didn't exist, so it is impossible to pinpoint their exact effect. It's relatively easy to say things would be much worse without the stimulus or that it had no impact.

What the Numbers Are Saying
Despite these hurdles, two researches from the Mercatus Center at George Mason University, Garett Jones and Daniel M. Rothschild, have tried to approach this subject in a systematic way. They released a paper this week analyzing the impact of the stimulus on employment and the broader economy. Their team interviewed managers at 85 firms that received stimulus funds and asked them how the money affected their hiring decisions, and if they did add staff, where they found their new workers.

The results were illuminating and point to some of the difficulties in crafting a successful jobs program. You can read the paper for yourself here. The first main takeaway the authors had was that the stimulus did convince firms to retain workers and to hire new ones. The money was not just used as a cash cushion but was actually spent on putting people back to work.

The downside was the study's second major takeaway: Most of those who got the new jobs already had jobs beforehand or came out of retirement to take the new job. Only 42% of the new jobs created were taken by the currently unemployed. The people who were most likely to get hired were those who already had jobs, not the ones that the stimulus had targeted to help. The authors also found that only 47% of respondents said that it was easier to find high-quality employed before the recession than after. Even with a huge pool of unemployed workers to choose from, it was the high-skilled workers already doing well who were the most likely to benefit from the stimulus program.

This dovetails with the data from the payroll reports showing markedly lower unemployment for people with higher educational attainment. For workers over 25 years old with a bachelor's degree or higher, the unemployment rate stands at 4.3% down from 5.0% a year ago. For those over 25 without a high school diploma, unemployment stands at a staggering 14.3%, up from 13.3% in August 2010. So it is possible that the stimulus had little direct impact on the high-unemployment demographics.

Of course, this is just one study, and hardly the definitive word on the impact of this program. Others have found a more positive effect on the economy, and again, there really is no definitive way to know for sure what the full impact was. But it does show just how difficult it is to construct a program that can really have an impact on the unemployment rate and get people back to work.

Corporate profits are strong and nearly back from precrisis highs, and company managers discovered that they didn't need as many workers as they previously had. We now have a structural mismatch between the skills unemployed workers have and the ones companies across the country need. Payroll tax cuts, infrastructure projects, and job tax credits might be able to help somewhat, but solving some of the long-term structural problems is going to take a tremendous amount of training, education, and time.

The hard truth is there is no quick fix to the unemployment problem. No one bill is going to magically bring the economy back down to a 5% unemployment rate. That doesn't mean we shouldn't try to promote growth and hiring the best we can, but we'll have to keep our expectations in check as to how much can be done. It could be a long road back.

What do you think? Are there any policy responses that you think could make a difference? What will convince firms to hire again?