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Job creation value

Just to clarify, I have no experience, academic background or deep understanding of economics. Apologies for such a basic question but I couldn't find a real answer.

I hear a lot about job creation:

  • "This will create X jobs"
  • "Losing jobs overseas"
  • Etc.

I have trouble understanding the inherent value of the current amount of jobs to society. If jobs are lost together with the productivity they created then I get why there is a problem. For example: A factory was destroyed in a fire, the workers lost their jobs, and society lost the productivity of the factory. But if all other things remain equal, what is the value of a job? I'm going to add my very naïve analysis below to help illustrate my thinking.

Naïve interpretation

Let's say we have a country that has some people working right now. Suddenly 10,000 stopped working without affecting productivity. Maybe there was a temporary need that was filled or perhaps some technology made their jobs obsolete.

If current amount of jobs is an inherently positive thing, I should now be at a worse state than before. As I see it, I just got 10,000 potential workers. Modern humans, even not well trained ones, produce vastly more than they cost to support.

I can certainly understand that it can be traumatic to lose your job but that's an argument for job stability or something, not job creation.

The argument that all those people are not retrainable at all, seems a bit far-fetched. They can't all be 60 year olds who trained their entire life in this field and are uneducated in absolutely anything else. And if that was the case, it would be better treated as a surprising early retirement. Tragic for people who weren't prepared, yes, but a completely different problem.

Bob Baerker
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Anonymous
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    Does this answer your question? Why is it good to create jobs? –  Dec 16 '20 at 04:25
  • While new jobs have little value to the economics in the grand scheme (and i.e. loosing jobs for seamstresses can indicate a stronger economy), they have a value to those directly involved. However, politicians boasting with jobs created cater not for the economics scholar but for the layman voter. – Zsolt Szilagyi Dec 16 '20 at 14:11

3 Answers3

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You are correct that creating jobs in themselves, generally speaking does not have any economic value (save some exceptional situations - see below). In fact this is not novel observation, and you will find this stated in any 101 economic textbook for example see Mankiw Principles of Economics 8ed pp 33. As written in the textbook (in an excerpt from Economics article):

Little in the literature seems more relevant to contemporary economic debates than what usually is called the broken window fallacy. Whenever a government program is justified not on its merits but by the jobs it will create, remember the broken window: Some teenagers, being the little beasts that they are, toss a brick through a bakery window. A crowd gathers and laments, “What a shame.” But before you know it, someone suggests a silver lining to the situation: Now the baker will have to spend money to have the window repaired. This will add to the income of the repairman, who will spend his additional income, which will add to another seller’s income, and so on. You know the drill. The chain of spending will multiply and generate higher income and employment. If the broken window is large enough, it might produce an economic boom! . . .

Most voters fall for the broken window fallacy, but not economics majors. They will say, “Hey, wait a minute!” If the baker hadn’t spent his money on window repair, he would have spent it on the new suit he was saving to buy. Then the tailor would have the new income to spend, and so on. The broken window didn’t create net new spending; it just diverted spending from somewhere else. The broken window does not create new activity, just different activity. People see the activity that takes place. They don’t see the activity that would have taken place. The broken window fallacy is perpetuated in many forms. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the non-intuitive reality that real progress comes from job destruction. It once took 90 percent of our population to grow our food. Now it takes 3 percent. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college professors and computer gurus. . . . So instead of counting jobs, we should make every job count

The above being said there is some value to creating/preserving jobs in some situations. For example, during recessions some public works program might be part of a mix that is intended to stimulate the economy, or during short but severe unpredictable crises such as the current Covid-19 situation.

For example, the Furlough/Kurzarbeit schemes are generally considered by conventional economists to be valuable as they can help boost aggregate demand and prevent even more severe recession (Giupponi & Landais; 2020),however such support is exceptional.

1muflon1
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  • As well as making every job count, we should make sure every person has enough resources. If only 3% of the population are making food, the other 97% still need some... and if they just got laid off, it could be a very long time before they figure out something to offer in return. – user253751 Dec 15 '20 at 19:04
  • @user253751 right and economists would generally support unemployment benefits as they are important economic stabilizers and they would also support redistribution as also mentioned elsewhere in the textbook. But how does this have anything to do with question at hand? Is it just off topic tidbit? – 1muflon1 Dec 15 '20 at 19:06
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    It's just a tangent. IM(LP)O it's one reason why it's hard to make every job count - people will get stuck in suboptimal jobs if the alternative is having no job. – user253751 Dec 15 '20 at 19:45
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    The best part to me about the broken window fallacy is the corollary "why not have the glazier pay teenagers to go break some windows?" Economic activity! – obscurans Dec 15 '20 at 21:55
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    @obscurans - This absolutely happens. It's called war and is has tremendous economic impact. – noslenkwah Dec 15 '20 at 22:34
  • "creating jobs in themselves, generally speaking does not have any economic value" For the economic agents, having or not having a job is really important. I think I just don't understand, when we talk about "economic value", what is the point of view: the one of each agent, the point of view of the "society" ? – agemO Dec 16 '20 at 07:43
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    @agemO Making people do useless jobs isn't good for the economy and it isn't good for the people who work the jobs. If we just paid those people the same amount of money to do nothing at all, everyone would be better off, or at least the same! – user253751 Dec 16 '20 at 13:54
  • @agemO in addition above +1 comment which was right but put it in a crude way, economic studies regularly show that artificial jobs are more costly than giving the people who would be unemployed their regular salary and let the pursue their interests/hobbies (I think most people work because they must not because they like to). This is because in most production processes you need to combine labor with other factors like capital or land -to subsidize artificial job you have to subsidize also other factors job requires - otherwise the subsidy would often not be enough to create the job. – 1muflon1 Dec 16 '20 at 14:20
  • @agemO that is a waste of resources that state could put into healthcare, more redistribution or other goals that society collectively wants to pursue through government and that benefit people. In addition, government can support economy through fiscal or monetary policy which likely results into higher employment where they are most socially useful - however these policies are in economics not considered job creation policies but macroeconomic management policies because they don’t directly create jobs, although they increase aggregate demand which is associated with higher employment levels – 1muflon1 Dec 16 '20 at 14:23
  • So here "economic value" is more for the society than for the individuals. In the end job destructions could also be beneficial to the individuals, but it would require other complementary policies to be applied. – agemO Dec 16 '20 at 15:59
  • @agemO the economic value here is 0 for both as in any science in economics as well to analyze a complex issue you need to break it down into parts - here the job part for most individuals is just means to an end not an end in itself. The point here is that this mean in itself has no economic value - it is the consumption of goods and services that income from your job gives you that has value. So correct answer here is that job has no economic value both for society or individual - the reason why this is important distinction is that once you realize this the discussion shifts from providing – 1muflon1 Dec 16 '20 at 16:08
  • @agemO jobs to people to actually providing them with goods and services they want which can often be done in significantly more efficient ways than just giving them jobs – 1muflon1 Dec 16 '20 at 16:09
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The OP posted some legitimate short-term thoughts and @1muflon1 gave the economically correct answer (short term), let's now explain why politicians and the general public are obsessed with job creation. There is a long-term underlying worry (and perhaps wisdom) here.

Jobs are required to mitigate the effects of wealth and income inequality. Without jobs, those without capital will threaten societal stability. And if this goes far enough, it will really jeopardize the wealth of those who do have wealth. "Sacred" principles like the respect for private property will go down the drain once biological survival becomes the issue -and even before that.

In society's timescale, automation and AI will inescapably reduce the amount of labor / human capital required for production, and no amount of re-training/job re-orientation will change this brutal quantitative result (see also this post, https://economics.stackexchange.com/a/3230/61).

So "creating jobs" is: the psycho-social comfort pill for social stability, the long-term insurance policy against such dark prospects, and also, what keeps open, even in a symbolic way, the door of upward social mobility through work.

Is it any wonder that almost everyone is obsessed with job creation? With some rational reasons to back up this obsession too?

Alecos Papadopoulos
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    +1 this is interesting political economy perspective. However, this being said as I read literature most economist would still prefer instead of creating jobs some redistribution and then let people fill their free time however they want. That does not prevent ambitious people to pursue their career as with generous welfare they will self select to jobs that other might leave in order to enjoy pursuing their own interest on benefit – 1muflon1 Dec 15 '20 at 19:24
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    @1muflon1 I do not disagree, but I would love to watch as these economists take up the issue of serious redistribution with anyone on the giving side of the equation. – Alecos Papadopoulos Dec 15 '20 at 19:40
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    well but those artificial jobs are not free and likely will end up costing them even more than the redistribution. But otherwise I see your point people care more about visible costs than invisible ones and translate that to their political preferences. – 1muflon1 Dec 15 '20 at 19:50
  • "Is it any wonder that almost everyone is obsessed with job creation? With some rational reasons to back up this obsession too?" The reasons don't justify the obsession. – Acccumulation Dec 16 '20 at 03:09
  • How can it be regarded as an obsession ? In most country you are better off with a job than without it, so isn't it just being economically rationnal ? Why would a citizen care about the GDP growth if it doesn't go into its own pocket ? – agemO Dec 16 '20 at 07:36
  • @agemO I am under the impression that this is exactly what I have argued in my post. By the way, I don't view the word "obsession" as having necessarily negative connotations. For example, I am obsessed with economics and econometrics. – Alecos Papadopoulos Dec 16 '20 at 12:43
  • @Acccumulation To me, they do. – Alecos Papadopoulos Dec 16 '20 at 13:03
  • @agemO Don't stop thinking there. Think about why people are better off with jobs. It's because the economy is designed that way, from the top down (e.g. no UBI). You need a job or you aren't allowed to live, basically. Continue thinking: Why is it designed that way? Why don't we just give everyone the stuff they need to live, so that they don't have to find jobs when there are none? If we did that, then there would be an equilibrium between jobful and jobless people. – user253751 Dec 16 '20 at 13:55
  • @agemO It's economically rational for an individual to get a job if the benefit of having a job exceeds the cost... but in today's society, the benefit is basically infinite (you don't starve to death on the streets) – user253751 Dec 16 '20 at 13:57
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That depends on what you mean by "all else being equal". If you mean that the person who gets the job would have otherwise have had the same purchasing power, then there is little value other than perhaps the worker having a better sense of worth.

If you mean no country-wide increase in productivity, there can still be value if it changes income distribution, given a sublinear utility function. However, that depends not only on the jobs increasing equality, but on it being sufficient to outweigh the costs of the jobs.

A further issue is whether any net jobs are actually being created. For instance, while there are thousands of jobs that can be attributed to Trump's tariff, the jobs created tend to be more visible and more clearly causally related than the jobs lost. One estimate is that 300,000 jobs were lost from the tariffs and the resulting trade war. Protectionism is a poor way of generating jobs, as decreases in imports in one field tend to be compensated by either imports in another field, or decrease in exports, rather than a decrease in trade deficits. Not only are there unemployed that would have had jobs without the tariffs, but most of the people that have jobs that opened up because of the tariffs would have gotten another job. Those jobs then have to be compensated for, such as by having people in other countries do them or reducing consumption.

"All else being equal" is not something that tends to happen in economics. You can't just "move jobs home" in one industry, and not have it have ripple effects.

The main reason there is so much focus on "creating jobs" is that the public has little understanding, interest, or respect for economics. In Kahneman's terms, "creating jobs" appeals to people's System 1, and arguments against it come across as "putting money above people" and thus a violation of sacred values.

The argument that all those people are not retrainable at all, seems a bit far-fetched.

Well, retraining is an economic drain.

Acccumulation
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