Arnold Kling  

Job-Creation Arithmetic

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Paul Krugman writes,


The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created?

Krugman's arithmetic is to take the ten-year revenue loss from the tax cut, divide that by the number of jobs that supposedly will be created, and compare that with the one-year salary of a worker. It seems to me that this inflates the cost of each job created by a factor of 10.

He may be correct that tax cuts are not the most efficient way for the government to increase employment. But I do not think that this way of doing arithmetic is his best argument.

For Discussion. What are the challenges with measuring the job-creation impact of fiscal policy, even after the fact? Shouldn't the duration of the gain in employment be taken into account?


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CATEGORIES: Fiscal Policy



COMMENTS (9 to date)
David Thomson writes:

“Shouldn't the duration of the gain in employment be taken into account?”

Of course it should. But why take a hack like Paul Krugman seriously? The man likely wakes up in the morning committed to the proposition that the Bush administration is the beginning and end of all evil in the world. He has destroyed his credibility apparently to make sure the Liberals continue inviting him to their parties.

My guess is that Arnold Kling has dwelled on this particular issue for at least a few hours--- and Paul Krugman has probably spent less than fifteen seconds! Am I perhaps exaggerating and indulging in a mere personal attack on Krugman? I believe I’m not. Others may disagree, and that is their right to do so.

scott writes:

I ran some numbers a while back on what it cost to produce jobs at a new power plant being proposed here in Arizona. IIRC it was about $300 million in capital spent over 3 years to get the plant up and running. Once in operation, it would employ about 200 people for 30 years. The construction labor force was estimated to be about 2000 workers.

So, you’ve got 6000 man years to build it and another 6000 to run it through its economic life. That’s $25K of capital for each year of employment. Alternately, that’s $750K for each 30 year job.

Creating manufacturing jobs isn’t cheap.

Patrick R. Sullivan writes:

The Amazing Shrinking Economist strikes again.

Using his methodology (which surely is incorrect, and overstating the present value) you get about $50K for each job created. Anyone with a modicum of experience in business knows that $50K is not an unreasonable figure at all. The negative cash flow could easily be more than that.

David Thomson writes:

"So if the administration really cared about jobs, it would provide an emergency package of aid to state governments — not to pay for new spending, but simply to maintain basic services"

---Paul Krugman


Is Paul Krugman smoking some of that illegal stuff? Maintaining “basic services” for most states like California is simply an unjustified extension in frivolous spending. Do you really wish to encourage job creation? If so, starve your local bureaucrat and elected official. Did I leave anything out? Yup, Americans must also cease being hypocritical! We are in the long run cutting our own throats when we petition the government for more “benefits.”

mike van winkle writes:

"What are the challenges with measuring the job-creation impact of fiscal policy, even after the fact? Shouldn't the duration of the gain in employment be taken into account?"

Absolutely, but I don't think quantifying the "duration of the gain" will be very easy. If you create a thousand new jobs, well don't those jobs contribute to the creation of even more jobs...and depending on what the average income of the jobs created (not necessarily equivalent to the average american salary) you might project the expect revenue increase over even more than 10 years. Consider that the unemployment level has yet to rise above the 9.7% of 1982. So the gains from Reagan's tax cuts are still aggregating...ad infinitum right?

David Thomson writes:

"If you create a thousand new jobs, well don't those jobs contribute to the creation of even more jobs."

You are only half right. The productivity gains, however, in one sector of the economy may be so great that less employees will be eventually needed. A growing company still requires far less secretaries than it would have some fifty years ago.

Eric writes:

Anyone interested in the REAL Paul Krugman needs to check out the "Krugman Truth Squad" at National Review Online

http://www.nationalreview.com/

They started up about 5 weeks ago to debunk the liar.

David Thomson writes:

Is Paul Krugman a liar? I don't think we need to question Krugman's morality? I rather argue that his ability to think straight leaves much to be desired. Let's leave it at that.

Eric writes:

No, Krugman knows better. He's a liar.

More on this issue, a bit of a mea culpa from the Kugmeister himself:

http://www.nationalreview.com/nrof_luskin/luskin042503.asp

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