Shedding light on the "Jobs 'created or saved' lie

From Edward Lazear writing at the Wall Street Journal:

Stimulus and the Jobless Recovery
Jobs 'created or saved' is meaningless. What matters is net job gain or loss, and that means the unemployment rate.

With the news that GDP grew at 3.5% in the third quarter, it seems apparent that economic recovery is underway. How much of this was a result of government programs? To evaluate this, it is important to understand what constitutes a recovery. There are three developments needed to restore the economy to its prior vibrancy.

The first development, bank stabilization, began in late autumn of last year. The source of the recession was financial-sector turmoil that commenced in August 2007 and peaked in early autumn 2008. Although we did not know it at the time, by the end of 2008 the financial crisis had passed. Financial markets were far from normal, but the panics and major collapses that characterized September 2008 were behind us, and no others arose. This financial-sector stabilization created the environment that is allowing our economy to heal.

This past January, at the end of my term as chairman of the President's Council of Economic Advisers, my agency released the White House economic forecast. At that time, I said that I foresaw a couple of bad quarters but expected that the second half of 2009 would be positive, with perhaps very strong growth in 2010. These forecasts assumed no stimulus; the projected turnaround was instead based on the natural rebound of the economy that would come after the financial crisis had eased. The resumption of GDP growth, which is the second development on the road to full recovery, probably began in late spring of this year.

The third recovery factor�job growth�will be slower to develop. In a shallower recession that ended in late 2001, job growth did not become positive until 2003. Historically, recoveries have a consistent pattern: Productivity grows first, then jobs are created, and finally wages rise.

Emphasis mine -- productivity first, jobs and wages second. But why are they touting these huge jobs saved or created numbers?

After reporting GDP, the government released new numbers claiming that the stimulus programs have "created or saved" over a million jobs. These data were collected from responses by government agencies that received federal funds under the American Recovery and Reinvestment Act of 2009. Agencies were required to report "an estimate of the number of jobs created and the number of jobs retained by the project or activity." This report is required of all recipients (generally private contractors) of agency funds.

Unfortunately, these data are not reliable indicators of job creation nor of the even vaguer notion of job retention. There are two major problems. The first and most obvious is reporting bias. Recipients have strong incentives to inflate their reported numbers. In a race for federal dollars, contractors may assume that the programs that show the most job creation may be favored by the government when it allocates additional stimulus funds.

No dishonesty on the part of recipients is implied or required. But when a hire conceivably can be classified as resulting from the stimulus money, recipients have every incentive to classify the hire as such. Classification as stimulus-induced is even more likely if a respondent must only say that, except for the money, an employee would have been fired. In this case, no hiring need occur at all.

An excellent analysis -- I am only excerpting a few thoughts, go and read the entire article as he gets into a bit more detail about specific programs.