Monday, September 21, 2015

More Economic Reality

Last time I told of how some fast food workers were demonstrating for a $15 wage, while in parts of North Dakota where the economy was strong and unemployment very low, one Wal-Mart was offering over $17 per hour starting pay to attract workers.  It’s purely a matter of the supply of willing and able workers falling short of the demand.  Many of the able-bodied in that part of the state can work in jobs related to oil production for far more money.  Accordingly, the best way to get a good-paying job is to have skills or talents either superior to many others or rare in society.  Examples include top salespeople making the best commissions and star athletes winning tournaments or big contracts, but the principle generally extends to the rest of us who expect to get rewarded for a good education and hard work.  (Of course some get rewarded for being favored by the boss or being related to the owner, but much of that is out of our control.)

That supply and demand dynamic works well if the jobs exist, but where do jobs come from?  Politicians would like us to believe that if elected, they will create jobs.  Later, if the job situation improves, they take credit; if jobs disappear, they blame evil corporations, the general economy or other politicians – or sometimes they make up numbers and take credit anyway!  The truth is that government does not create jobs (except more government jobs).  Politicians can only make it easier, less burdensome, for businesses, especially small businesses to operate and grow.

Do businesses create jobs?  I’ve often heard people, especially during the recession, complain that if Apple or another big company has so much cash on hand, why don’t they use some of it to hire more people.  These complainers don’t take it to the next step by asking what the new employees would do.  Would they help to make more products, products that would just accumulate in a warehouse somewhere?  That might work in the short term, but then those people, plus others, would be laid off until the products sold.  With no one to buy the products or no one interested in the extra service the companies have no reason to hire anyone.  They will continue to accumulate cash while they advertise in an attempt to grow; but they need more sales to hire more workers.

The ultimate conclusion then is that customers create jobs!  Companies must have someone interested in buying a product or service to justify hiring someone to produce that product or provide that service.  The lemonade stand at the bottom of a dead end street is pretty much doomed to failure.  Apple without people lining up to buy the latest phone has no reason to maintain their level of stores, distribution, research and advertising staff.  A large majority of new start-up businesses fail in the first 2-3 years not primarily because they are poorly run, but because they are unable to attract enough customers to cover their costs.  Many entrepreneurs will live on a minimal salary or no pay at all in an attempt to get their business off the ground, and that means building a customer base.

No matter what we hear from politicians over the next 14 months and beyond, government does not create jobs.  Customers are responsible for private sector jobs and our jobs depend on those customers being happy and coming back.  Unfortunately too few executives grasp this concept well enough to value the workers who make their products or otherwise have face-to-face contact with their customers and to treat those workers with the respect and honesty necessary to motivate continuous caring and high performance.

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