The High Cost of “Creating” Jobs

January 14, 2009

Bloomberg is reporting that Senator Charles Schumer (D-NY) has told reporters that the cost of the stimulus plan Congress is negotiating may grow to $800 billion to $850 billion. This is substantially higher than the reported $775 billion cost of President-elect Obama’s stimulus plan.

The Obama camp maintains that their plan will “create or save” between 3 million and 4 million jobs over the next two years and, no doubt, lawmakers will argue that more money will create even more jobs. But it appears that no one has stopped and done the math of how much each of these jobs will cost to “create or save.” It’s a lot.

Here is the basic math of the Obama plan:

Estimated Cost of “Stimulus” Package

$775,000,000,000

Number of Jobs to Be Created or Saved

3,500,000

Cost per Job Created or Saved =

$221,429

Let’s put these numbers in context:

  • The $221,429 figure is roughly four times the average total compensation cost of employing workers in private industry, $56,305 or $27.07 per hour, according to the Bureau of Labor Statistics. For the sake of argument, if the entire $775 billion were going to “create” jobs, it could pay for more than 13.7 million workers in the private sector.
  • The $221,429 figure is nearly 10 percent higher than the median cost of an existing single family home ($200,000 according to the National Association of Realtors). This means that for the same amount of money the government could buy outright more than 3.8 million homes. This is nearly four times the 1 million homes that were actually foreclosed on in 2008.

This begs the question, Where is all the stimulus money going if it is not going to “create or save jobs” or keep people in their homes? I guess the overhead costs of jumpstarting the economy are higher than one would expect.


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