Flashback – Job Creation Basics

[Every two or four years we hear tales from federal and state candidates about who has or who is going to create the most jobs. In reality the only jobs governments create are government jobs. The best any government can do is to minimize regulations that stifle job creation and not try to micromanage the job market. 

I wrote a reminder of this in August 2011 when the job market was just recovering.]

There has been a lot of talk about jobs in the past two or three years, but I think it requires strong economic understanding and critical thinking to draw accurate conclusions.

Jobs are not created; they are purchased. You don’t work for the boss; you work for the customer. Conversely, jobs don’t go away, customers go away. My experience is that many bosses don’t understand this important concept and fail to pass it along to their workers. When a company is growing or downsizing, it is usually based on matching the number of jobs to the needs of their customers.  (Sometimes, though, they economize by passing along their work to their customers, think self-service check-outs and those irritating phone menus).

When we work at jobs, making goods or delivering services, there must be a market for those goods and services. People should say to themselves, ”Wow, this is better and cheaper than the other comparable alternatives. I’m glad I made that particular purchase.” Everyone in the organization, whether it be a single proprietor or a global corporation, is working together to make that sale successful. Then customers continue to buy and more customers arrive. By buying more products or services, they essentially create more jobs. This is the motivation for a company to focus on customer satisfaction.

When a governor decides to “create green jobs” by mandating that a portion of electricity be generated by renewable sources (wind, solar), who purchases these jobs? Since they are created, they must be additional to jobs that already existed and the additional wages for these additional jobs must come from somewhere. Because there is no magic money tree, utility customers pay more. These jobs are created not because there are voluntary customers; instead the customers are forced to buy these new jobs with money they would have spent on other things (i.e., other jobs). Then we are paying more to support a wind farm that no one asked for, with a much bigger ecological footprint than conventional generation, that requires a back-up system anyway because it is only 35% efficient as the wind blows only part of the time and more at night, when less electricity is consumed. It doesn’t improve customer satisfaction or attract new customers. It merely creates jobs by displacing other jobs.

When we hear of jobs being created, we must be very wary. GM, GE, General Mills, and Geico don’t create jobs. When they have something we want, we, as customers, create those jobs voluntarily by our buying decisions, not because of new laws or regulations, but because we believe the output of those jobs makes our lives better.