Policy Research

Unemployment and Public Budget Impacts of Auto Bailout

Robert Baumann, Andrea Thompson

Summary

Serving as a case study for fiscal policy stimulus programs, this article examines the employment and budgetary effects of the auto bailout in Michigan. By measuring the dollar value of public funds saved from unemployment insurance costs and unfunded pension liabilities, the authors estimate that $1.3 to $1.6 billion was saved through the retention of around 7,700 jobs per month over the duration of the bailout. Concurrently, the net cost of the auto bailout is determined to be around $9.3 billion.

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Policy Implications

While it is acknowledged that the bailout of the auto industry yielded positive outcomes for the economic conditions in Michigan and the auto industry as a whole, the initial investment required and ending net costs were considerable. The author notes that the circumstances surrounding the bailout were situationally specific, cautioning that different conditions may result in different outcomes. It can also be considered a risky precedent to set; the knowledge that government bailouts are possible for failing companies may encourage less cautionary decision-making among other firms considered “too big to fail”.