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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

White House: $92K to Create Each New Job Under Stimulus

It will cost $92,000 to create each new job under President Obama's $787 billion stimulus planned passed earlier this spring, the White House said today, a figure far greater than the yearly salary of that job.

The report is a forecast for the stimulus plan's main goal: creating and saving jobs.

The report estimates that 1.5 million jobs will be created or saved by the end of this year, another 3.5 million by the end of next year, 1.7 million by the end of 2011 and 300,000 by the end of 2012, when the stimulus money runs out of steam.

The report concludes that, using the stimulus, it will take $92,136 in government money to create a single job-year, or a full-time job for one year.

The report estimates that it would take $116,603 in state fiscal relief and $145,351 to create the same job-year.

So the administration is arguing that the taxpayer-funded stimulus is the cheapest way to create jobs.

Strictly speaking that may be so. But there are two important things to consider:

a) If all you want to do is create jobs, that's not hard.

If the government spends money, stuff will get built and people will get hired to build it. Businesses will take government money to hire workers, as will states and cities.

But simple job-creation is not an end in itself for long-term economic growth. Once the funding for the jobs dries up -- the government stimulus money -- those jobs could prove to be phantom jobs and go away.

Market-based economists believe the best way toward long-term job creation is by enabling employers to create lasting jobs, and one of their tools is the tax cut.

So while the tax-cut option initially costs more when creating a single job-year, it might be cheaper in the long run because those employed by stimulus hiring will not be unemployed again when the government money runs out.

However you achieve it, a 1 percent increase in GDP equates to roughly 1 million new jobs, or an downtick of .75 percent in the U.S. unemployment rate, which now stands at 8.9 percent.

b) What? $92,000 to create a job that will pay perhaps half of that? Talk about government waste!

Truth is, that's not as outrageous as it looks. Start-up costs are always high, whether you're hiring someone or selling a product. You pay big front-end costs knowing -- hoping, assuming -- your costs will go down as the years go by.

Here's an example from an industry The Ticker used to cover: satellite radio.

In the early years of XM and Sirius satellite radio, the companies had to may as much as $500 to get each new subscriber. Back then, a year's worth of XM cost about $150 per year, so -- quite literally -- the companies hurt themselves worse with each new subscriber they signed up. Great business plan, right?

But by the first quarter of 2009, the combined Sirius-XM had reduced its subscriber-acquisition cost to $61 each new person.

So -- assuming the jobs created under the Obama stimulus plan stick around for a few years after the money runs out -- that $92,000 cost will eventually be paid for by the salaries of the new workers.

We shall see.

-- Frank Ahrens
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By Frank Ahrens  |  May 11, 2009; 3:40 PM ET
Categories:  The Ticker  | Tags: Obama, jobs, stimulus plan, unemployment  
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