Guest Post: What does it mean to “create jobs”?
This is a guest post by FogOfWar.
The phrase is used constantly by politicians and economists, but what does it actually mean to “create jobs”?
Here’s an example: I open a coffee shop and hire two people. So I’ve created three jobs (counting myself), right? Really? Let’s assume for the moment that I’m no more or less efficient at making and distributing coffee than my competitors and also that the total amount of coffee required in the world is constant. Then my coffee shop must be taking customers away from another coffee shop, and at a frictionless level, there are three coffee jobs lost for the three coffee jobs I just created.
Yet no politician, and indeed no economist quoted on TV or newspaper, will go into the distinction between gross job creation (3) and net job creation (0). For politicians this makes sense because they want the appearance of good results to be reelected (and often nothing more than that). For economists, or at least economists dealing with journalists, it may well be that it just gets too fuzzy to make a simple point, and a story without a simple and strong hook is killed by your editor.
Another point: I can think of a specific example of something that really did “destroy jobs”–it’s the invention of the EZ Pass. When I was growing up (yes, I’m ancient), there were dozens of people working at each of the toll collection booths on the highways, each counting out miserable hours collecting change from surly passengers and inhaling vast amounts of carbon monoxide. Now there are a handful at each on ramp and a row of EZ-Pass computers.
There’s no question in my mind that EZ-Pass destroyed jobs, but this seems like a good thing rather than a bad thing. Should we strive to keep really crappy jobs that are obsolete by technology just so that people have something awful to do with themselves all day, instead of doing something equally unproductive like watching TV all day, or maybe even spending time with their families and community? I think this is a variation of the “broken window fallacy” if I remember my intro economics correctly.
Lastly, I’ve assumed a closed system, but let’s relax that assumption. Here are two things that definitively will create jobs: (1) start manufacturing cell phones in the US; and (2) have 20% of the US consumers buy American when they have a choice. Both of these actions will move actual jobs from overseas to the US and thus will “create [US] jobs” in a very real sense of the word.
One other thing that must be true: I’m not the first person to think of this and suspect there are people who have dedicated more serious time and attention to the question than my casual observations. Thoughts?
mathbabe 
yes, the employment statistics (as they are presented) say little meaningful about the health of the economy. The middle class, which capitalism depends upon, has been decimated and will take a decade or two to rebuild to a semblance of its former self (if ever). Plutocracy may well be here to stay. Your suggestions are sensible but pie-in-the-sky, given the trajectory of technology. Oy veyyy.
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Yes but do we want those jobs brought back to America? Would it not be better to give everyone a universal basic income (UBI) and focus Federal Gov effort on building infrastructure?
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I would like those jobs brought back to America, but I can only speak for myself.
FoW
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In 1924 Major C. H. Douglas in his book Social Credit wrote that in 100 years the world would only require 2% of the population to produce 100% of the goods needed. We are not there yet but the creation of service jobs and the crapification of jobs is because we don’t need so many manufacturing or agricultural jobs. His solution, Social Credit. The Capitalist solution put everyone in debt, prison, on the street and have politicians talk about how they create jobs (looking at you Scott Walker).
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Nice post.
However, in the coffee shop example, it is not true that the total demand for coffee is static. Supply often creates it’s own demand. So under some circumstances, this new shop will have net new jobs. Still, your point that it often cannibalizes other jobs is valid
The key point of your post is that we place too much emphasis on jobs. We improperly count them (gross vs. net) and we have a make-work bias. As you note, productivity means fewer jobs, yet more wealth. What we should focus on is growth and productivity, not the number of employees.
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Elastic supply is indeed a follow up question, although it begs deeper questions of “if I’ve enticed more people to drink coffee at the expense of buying waffles have a just shifted jobs amongst industry sectors.”
I don’t have answers and when I think about this too much I wind up with a mild headache after a while…
FoW
PS: the intent of my post was to say “we should be creating jobs, but to do so we first need to have a handle on what actual creates jobs and what just shifts them around instead.” Should have been more clear on that…
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“There’s no question in my mind that EZ-Pass destroyed jobs, but this seems like a good thing rather than a bad thing. Should we strive to keep really crappy jobs that are obsolete by technology just so that people have something awful to do with themselves all day”
Menial jobs that don’t endanger health are a good thing for entry-level workers. Checkout and baggers at the supermarket, for instance, provide teens with a bit of money and support a work ethic. Self-checkout takes away these jobs – I won’t use a self-checkout station.
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I really admire you putting your ideology into practice at a real and local level!
We could quibble on this point, but I think you are at the least raising aspects that should be considered as well.
FoW
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With the introduction of EZ Pass, toll-collection jobs disappear, but the customers get a better service. This is irrespective of whether or not the total number of booths goes up. But when a supermarket cashier is replaced by a machine, customers have to do more work themselves, and are thus receiving a lower level of service.
That is, one example has us paying less (*assuming some cost savings make their way to us) for more service, and the other has us paying less (*) for less service. Another reason why some innovations are better than others
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Perhaps there’s an argument that the “better service” of EZ-Pass is in exchange for a somewhat invisible surrender of privacy rights. That is: the government gets free tracking & search capability of any time we traveled on the highway.
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Great post! Here’s another thought: Who’s creating what? Is the owner “creating” jobs or are the workers creating value for the owner? If the coffee shop owner can’t find any competent baristas then he won’t be able to sell as much coffee, which hurts his profits. So he needs good workers who can help entice customers to come in, which then creates value for the owner. The post-crisis newspeak has been dominated by this “job creator” vocabulary, which seems to deliberately skew the scale towards value coming from the owner/boss vs. from the people who actually execute the business. Probably not a coincidence that this phrasing has been chosen.
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One quibble: my understanding is that incomes are generally lower and unemployment generally higher abroad. So if anything, we ought to encourage more jobs to move overseas.
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If your point is the exporting of the textile, extraction, and manufacturing jobs caused the unemployment and low wagers overseas you are wrong.
If your point is we should help spread the wealth by moving jobs overseas to raise the wages and employment of overseas workers that is a valid point, but a hard sell IMO.
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Three responses to your post: first, I think most people would prefer to have a crappy (not dangerous) job to being unemployed, even if they were housed and able to feed themselves while not working, especially if that job paid a living wage. I would. Being able to earn your daily bread and help support your family gives value to even a crappy activity. Even mine workers fight to keep their jobs.
Second, I’m always confused by the statement that there aren’t enough jobs in our country. Don’t we hear every day that our infrastructure is crumbling? That’s a lot of infrastructure! Surely there are tons of construction and maintenance jobs that could be created. All parents know how hard it is to find good child care and after school care–more jobs! We just aren’t willing to pay for them, or to recognize that most public sector workers are not leeches living off taxpayers, but provide valuable services.
Third, of course we are facing a world-wide contraction of jobs, especially as we recognize what the goal of continual growth–more consumer goods, more use of carbon fuels, more garbage–is doing to our basic resources of earth and air and water. Perhaps we will arrive at the time when we will pay people enough for a few hours of work so that there will be enough work to go around.
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The mine workers fight for their jobs for many reasons, I don’t think “because SNAP and welfare steal my dignity” is high on the list.
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I would not underestimate the desire not to go on food stamps or welfare. Pride is a powerful emotion.
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1. We need to make the distinction between paying for labor and the distribution & redistribution of value in the economy. Nobody wants a *job*, they want to get *paid*. We only (or mostly) care about jobs because that’s how people get to eat and buy houses, otherwise we would want as little work as possible. (and maybe some of our play would resemble paid work, but that’s a different issue)
2. Lots of people make the mistake of assuming that an automated job = an unemployed person, but this oversimplifies the actual dynamics of what happens in the economy–in an uncharitable way. This is a well-studied topic in economics–search for things like “technological unemployment” “jobless growth” or just innovation and employment. This recent paper focuses on developing countries but it has a nice matrix with a pretty good overview of the employment consequences from innovation:
Click to access MPRA_paper_58214.pdf
3. Manufacturing and stable jobs are important for many reasons. But the thing to remember about any kind of protectionist policy is that by raising the cost of cell phones by making them be manufactured in the US, you are taking money from consumers *and other parts of the economy where consumers would spend that money.* It’s all opportunity costs.
4. The consequences of automation that we should be worried about are the impacts on bargaining power. We need policies that can channel the benefits of innovation to the losers from innovation.
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“by raising the cost of cell phones by making them be manufactured in the US, you are taking money from consumers *and other parts of the economy where consumers would spend that money.*”
Except that many of those consumers are also the manufacturing workers who have not lost their jobs. If instead they are unemployed, or employed in low paying jobs, where are consumers going to get the money to buy the cell phones or spend elsewhere? Where they have gotten money in recent decades is through debt. The dynamic of using cheap foreign labor to produce cheap goods for domestic consumers who do not have well paying jobs, while profits are siphoned off and not reinvested in the domestic economy, is unsustainable. A similar dynamic in the lead-up to the Great Depression was pointed out by Marriner Eccles in his testimony before the Senate in 1933.
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You’re making some pretty sweeping assumptions in your example – you’re assuming, for a start, that you’re going to open a business without any means of competing effectively. You’re also assuming that the demand for your product is fixed, and that everyone operates in some sort of binary universe where they’re either operating at full capacity or they’re out of business. Why can’t you have a coffee shop that serves better coffee than the existing stores? That serves people faster? That reduces the line-ups at its competitors without putting them out of business? That opens at times when they’re closed? The effect of your assumptions is to set up a straw man argument, which doesn’t really say anything in consequence.
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There is a fallacy for the type of argument made in this post–argument by accounting identity. Krugman explains this one here:
http://krugman.blogs.nytimes.com/2012/01/16/mistaken-identities-wonkish/
His examples are macro, but the issue applies equally well in the micro level. The thing is, once you start down the path of arguing by accounting identity, everything becomes perfectly static. No growth, jobs lost perfectly equal jobs gained, etc. It’s a beautiful mathematical picture that has nothing to do whatsoever with how the real world works.
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There is nothing fallacious about arguing from accounting identities. The conservation laws of physics are accounting identities. Big duh!
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I don’t think this is the kind of accounting identity argument Krugman is talking about–I’m saying that behavior at the on-the-ground level is that no net jobs are created (yes, with limiting assumptions and yes, not always).
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“Here’s an example: I open a coffee shop and hire two people. So I’ve created three jobs (counting myself), right? Really? Let’s assume for the moment that I’m no more or less efficient at making and distributing coffee than my competitors and also that the total amount of coffee required in the world is constant.”
That’s a huge assumption.
“Then my coffee shop must be taking customers away from another coffee shop, and at a frictionless level, there are three coffee jobs lost for the three coffee jobs I just created.”
You need to make some more assumptions to reach this conclusion.
“Yet no politician, and indeed no economist quoted on TV or newspaper, will go into the distinction between gross job creation (3) and net job creation (0).”
An important distinction. However, the unemployment statistics are about net job creation (among other pertinent things). People know that if you keep everything else the same and more jobs are lost than created, the unemployment rate goes up. I am not sure why anybody needs to point that out.
Let’s alter your example a bit. Suppose that, because of their economic situation, people have not been going out for coffee, but their situation improves and they want to go for a double latte every day. That increased demand for coffee at a coffee shop is likely to create net jobs at coffee shops. Right?
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Yep–relaxing the assumptions gives a more realistic picture of the complexity of life, and I’m obvi not saying that “no jobs can ever be created” because that’s just not true. My point is that the example is counted as “creating 3 jobs” without really thinking about whether it factually created 3 jobs or factually just shifted 3 jobs from one place to another, and all sorts of measuring devices for “job creation” (political ones spring to mind first, but probably a lot more) aren’t scratching beneath the surface on this point.
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To be sure, politicians talk about how many jobs thus and such a business will presumably create without going any further into the question. But do economists do that? If so, they should be ashamed of themselves.
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you talk about crappy jobs vs ppl staying home and watching tv or being with family. that seems a half thought out point. isnt staying home with family a good thing? isnt tv not really of much value other than entertainment? yes the word “job creator” is possibly manufactured by rightwing marketers. neither economists nor politicians seem to understand much or exactly how “jobs are created”. it seems to be an emergent phenomenon that is not easily described. aka smiths “invisible hand”. it appears however that wealth inequality is screwing up the process, whatever it is. an answer seems to come from marxism. technology is increasing the ability of capitalists to capture capital and keep it out of the hands of laborers. productivity up for decades, wages flat for decades. the results are now in, only denied by extremists, and capitalism is an utter failure in delivering really shared prosperity.
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If you think your boss works you like a serf, you’re wrong — serfs worked many fewer hours under feudalism than the modern industrial worker does under capitalism:
http://groups.csail.mit.edu/mac/users/rauch/worktime/hours_workweek.html
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Perhaps the lesson from the coffee shop example is that in order to actually create more jobs, you have to tap into new demand. This could be accomplished by getting people to spend money that they would otherwise save, e.g, if I start buying a $4 latte every day instead of a $2 coffee (without cutting back on my other expenses), just because the latte is so damn good. Or it could be accomplished by putting more money in people’s pockets, e.g., if after getting a raise from $8/hr to $10/hr I decide that I can afford to buy a $2 coffee on the way to work instead of bringing a thermos coffee from home (which only cost me about 25 cents per day). Either way, the demand translates to an increase in coffee shop revenue, potentially resulting in a net increase in barista jobs.
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The big question to ask about your coffee shop is whether it provides a slightly different experience than other nearby coffee shops. If it does, then it may provide something more suitable / desirable to some slice of the coffee-buying public. Even if you’re not adding jobs, you may be adding to net social value.
Matt Yglesias has written a lot about how the population density of cities allows niche businesses to thrive, and massive amounts of consumer surplus to be created, and thus exclusionary zoning that prevents densification is extremely harmful.
I think, as well, that it’s quite likely that by making more niche service work supportable — a greater variety of esoteric businesses can have a large-enough clientele within range to patronize them — denser living arrangements probably to enable actual job creation. It’s not the entrepreneur that creates jobs, it’s the customers that do that. Nick Hanauer has this right: https://www.youtube.com/watch?v=bBx2Y5HhplI
Say’s Law — that supply *inevitably* creates its own demand — is obviously false in practice. Sometimes price adjustments have that effect, but long-term shortfalls of demand are unlikely. But turn Say’s Law on its head: In the modern economy, with more and more of GDP made up of services rather than goods, demand is actually pretty good at eliciting its own supply. You can’t rapidly elicit extra supply for basic commodities like oil, so price spikes happen there; but if there’s a ton of demand for baristas, or other mid-skill service workers? There are plenty of people willing to go get the training.
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Nice comments, mostly people keeping their cool, important topic to discuss.
I just want to add another factoid, the illusion of creating jobs when a state steals industry with tax breaks. The result is some other state loses the plant or headquarters of a business, net jobs equal zero in these cases, and net tax revenue is also adversely affected.
Surely people can’t continue to ignore this, as well as the excellent coffee shop example? What does it take to communicate this bad logic so that it is acted upon?
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That’s an interesting point, and a bit of a pandora’s box–really one (or several) posts embedded in that question. There’s some literature on race-to-the-bottom scenarios in state-level tax breaks that I read many years ago that’s pretty damning of the process.
I suspect many state-level people know it’s true, but they’re in a classical prisoner’s dilemma. If Arizona refuses to give the tax breaks and New Mexico continues, then NM will siphon jobs. But again, PR is a necessity of reelection, so they say “we created jobs” even if they know the truth is more like “we didn’t get killed by our neighboring states on jobs by them eating our lunch.”
FoW
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Hey Cathy, here’ some new jobs, only problem is they are at San Quentin..hold on to your hat as they are teaching prisoners how to code now:) I would have thought maybe teaching them a bit about spreadsheets, emails, web items they could use every day would be good for rehab, but not here, the new breed of programmers:) You have to laugh at this a bit as well as the article says the State of California could have places for them to work at some point but the project is still new, and hey if you have too many bugs, well straight to solitary confinement, right (grin)…
http://ducknetweb.blogspot.com/2014/11/training-prisoners-to-code-at-san.html
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Hi,
very nice question and discussion! Just one comment on the creation of jobs: if you created your coffeeshop with the help of a loan, then new (additional) deposits have been created – and spent! Hence, this leads to an increase in aggregate demand and people will buy more things than before, which requires more supply/more jobs. Even if the coffee shop fails financially, the increase in aggregate demand (financed by the loan that created additional deposits) will lead to more jobs in the economy!
best,
Dirk (lecturer, Berlin School of Economics and Law)
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