ECONOMY:
 

Stimulus plan may not lead to many new jobs

Even if $150B tax rebate plan gives economy a shot in arm, it won't necessarily prompt employers to add staff.

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By Chris Isidore, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Most economists agree that the stimulus package recently passed by Congress will boost the economy.

How many jobs it will create, however, is up for debate.

The Bush administration has estimated that the stimulus package will add 500,000 jobs to the economy.

The January jobs report showed U.S. employers trimmed 17,000 jobs from their payrolls during the month. That fed new fears that the economy may be on the cusp of recession, if it hasn't fallen into one already.

President Bush and other politicians argued the day of the jobs report that the drop in employment was further reason to pass the $170 billion stimulus plan, which is equal to just more than 1% of the nation's gross domestic product (GDP).

The Senate and House both passed the measure Thursday. President Bush is expected to sign it soon and checks could go out as early as May.

The thought is that if consumers have more money to spend once they get their rebate checks later this summer, some businesses, especially retailers, will need to hire new staff to deal with increased demand.

But many economists argue that companies won't hire more permanent workers just because taxpayers may look to quickly spend their one-time rebate of about $600 for individuals and $1,200 for couples.

"Businesses don't change their hiring or investment habits for a one-check pony," said Rich Yamarone, director of economic research at Argus Research. "There's no overriding need to hire workers for anything more than a temporary basis."

Temporary cut, temporary impact: Yamarone and some other economists point to groundbreaking research by economist Milton Friedman in 1957 called the permanent-income hypothesis, which essentially suggests consumers and businesses change spending activity based more upon the their long-term income expectations.

According to Friedman, consumers and corporations don't change their spending significantly if they think a change in income is only temporary. That's the case if they see sharp drop in income or a sudden windfall.

Some liberal economists who often find themselves disagreeing with Friedman suggest that on this point, he could be right.

Jared Bernstein, an economist with the Economic Policy Institute, a progressive Washington think tank, said that although tax rebates in 2001 played a role in lessening the length and severity the last recession, the economy still ended up "with a pretty painful jobless recovery."

Even economists who believe the stimulus plan will help the job market argue that it will be felt from limiting layoffs, not spurring hiring.

"I don't think stimulus is going to cause a burst of hiring, it's just going to prevent firing that might otherwise take place," said Dean Baker, co-director of the Center for Economic and Policy Research. To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.