Cost of Federal Job Programs

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
--Billy Joel

Below is a picture of the monthly change in payroll employment as reported (and revised) by the BLS. Note that the Sept payroll number did not spike in a favorable direction like other numbers appearing in Friday's 'upside' report.

The Obama administration hates to shoulder blame for negative data--particularly data generated early in its four year term. OK, let's assume that this administration 'owns' the job story since Jan 2010.  Since Jan 2012 payrolls have seen a net increase of nearly 4.2 million workers, for an average of 127,000 employees/month.

This level of job addition is below that necessary to keep up with demographic change. Estimates vary, but ~140,000 is an oft-cited benchmark for monthly job formation in order to stay even with population growth.

The other thing evident with the series since Jan 2010 is that it is not trending. Currently, 127K makes for a good center line of a stationary process. Today's number, which happens to be the one that the media has not focused on, clearly has not altered the process picture.

Stated differently, job growth since Jan 2010 has been flat.

If we are to believe the Obama administration's claims, then federal government programs have been primarily responsible for the job growth obtained (although it is the fault of others, e.g., obstructive Republicans, the Bush Administration, perhaps even Herbert Hoover for the jobs that this administration could have produced...). So what have these jobs cost us?

Spending under the Obama administration has been about $13.4 trillion when we pro-rate OMB's 2012 outlay estimates thru Sept. Because the Obama administration likes to take credit for jobs 'created' from the programs, an important question is: How much have these jobs cost us?

Assume that $1 trillion of outlays during the Obama administration have gone to jobs programs. This is surely conservative, as unemployment assistance alone has cost at least half a $trillion since 2009. We are also not counting $2 trillion+ in spending by the Federal Reserve to stimulate the economy during this period.

Let's also conservatively assume that all of those 4.2 million jobs added since Jan 2010 were 100% due to federal spending programs.

$1 trillion in federal job programs divided by 4.2 million jobs equals about $238,000/job.

Using our conservative assumptions, we find that each job created has cost Americans over one quarter of a million dollars. If we relax our conservative assumptions to more accurately reflect reality, then the cost/job goes up. Adding the Fed's stimulus alone, which it could be argued is fully oriented toward job growth (as it indicated at the last FOMC meeting) pushes the cost toward $1 million/job.

You do not have to be a savvy manager or financier to recognize the poor return on investment here. If the jobs being created were producing, say, $200K or more in real income, then perhaps these these federal job programs are indeed valuable.

But that is not what is happening. The majority of the jobs being 'created' are low paying service and part time work (~500K in last Fri's report alone). The low salaries on these types of jobs make for ugly payback periods when the cost of each job is $250K or more. A part time salary of $25K would take 10 years are more to pay back. Few private sector managers would take on such low yielding projects.

Which is why they are reluctant to do so...

Government stepping in to 'fill the void' takes resources judged by private property holders as more prudently saved than deployed here. By confiscating that property and spending it, government consumes capital that at some point in the future would have formed the basis for durable economic growth.

Once consumed, however, capital is lost. We are currently burning capital on 'job projects' that should not see the light of day. Returns on these projects are meager to non-existent.

Moreover, consuming capital today puts us in a weaker position tomorrow.