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Not All Cuts Are Created Equal: Why Smart Deficit Reduction Matters

February 1, 2013

Not All Cuts Are Created Equal: Why Smart Deficit Reduction Matters

Source: Brookings Institution

According to the Bureau of Labor Statistics, the economy added 157,000 jobs during the month of January and an average of 200,000 jobs in the prior three months. These new estimates of job gains now reflect the annual “benchmark” revision to the payroll survey, which showed that the level of employment in December last year was about 650,000 jobs higher than previously reported. As a result, estimates of total job creation in 2012 were increased to 181,000 jobs per month, or a cumulative 2.2 million added jobs over the year. The unemployment rate, at 7.9 percent, has remained at roughly the same level since September of last year.

Thus far in 2013, the major economic focus has been on the budget—the “fiscal cliff” in particular—and the effect of the federal deficit on broader economic activity. Indeed, over the past two years, policymakers have made much progress on reducing the budget deficit. As currently legislated under the American Taxpayer Relief Act of 2012 (ATRA), the deficit is projected to fall to a more manageable 2.6 percent of GDP in 2018. However, the deficit is projected to rise thereafter, highlighting that, over the longer term, there is still more work to be done in matching revenues and spending.

In this month’s employment analysis, The Hamilton Project explores how the design of budget cuts could impact economic growth and living standards in the coming years and beyond. We also continue to explore the “jobs gap,” or the number of jobs that the U.S. economy needs to create in order to return to pre-recession employment levels.

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