Inventing Job Creation Numbers

The WSJ told readers that Democratic senators claimed that the employment tax credit in a job bill passed by the Senate would create 1.3 million jobs. It then added: "but some independent economists said they expected it would have less impact than that."

It would be surprising if any independent economists believed the tax credit would create even one-tenth this many jobs. Every month, roughly four million workers leave or lose their job. Employers hire roughly 4 million workers to replace these workers. (The job growth/loss number reported every month is a net figure, which is the result of this massive churning.) The vast majority of the 4 million workers who are already being hired every month would qualify for the Senate's tax credit.

This means that the overwhelming majority of the money would be paid out to firms that are hiring anyhow. Since the incentive provided by the credit is small, there is little reason to believe that it will have any noticeable effect on employment.

--Dean Baker

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