Labor Force Nonparticipation Undermines Recent Claims of ARRA Success

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Labor Force Nonparticipation Undermines Recent Claims of ARRA Success Introduction The Congressional Budget Office (2012) reported that the American Recovery and Reinvestment Act of 2009 (ARRA) continued to have a positive impact on unemployment rates during the most recent quarter. Despite estimates that over 90 percent of the $833 billion allocated had been spent by the end of September 2012, job production is expected to continue due to a lagging effect. During the third quarter of 2012, an estimated 135,000 full-time equivalent (FTE) jobs were created due to the impact of the ARRA. This estimate was based on the quarterly reports filed by funding recipients. When a number of additional factors were included in employment calculations, including historical precedent, the Congressional Budget Office estimated that the ARRA was responsible for creating between 0.2 and 1.0 million FTE jobs during the third quarter of 2012. The Congressional Budget Office (2012) assesses short-term impact of fiscal policy by relying on the predicted impact of changes in monetary policy by the Federal Reserve and the products of Macroeconomic Advisors and HIS Global Insight (Reichling and Whalen, 2012). The models used by these organizations assume economic output depends on labor supply, technology, available capital, and demand for goods and services. The validity of this model depends largely on the assumption that economic cycles recur with minor changes only. The ARRA was passed

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