Chapter 1: Job Creation

the-creation(Photo credit to Kevin Gessner, Flickr.com)

Who coined the term “job creation”? Probably not an economist. In a highly unscientific survey of three economists (including the two authors here), we found that none of us learned the term from our years of economic education. We also checked the latest editions of textbooks, and “job creation” is listed in neither the glossary nor the index pages.

We hear the term a lot, mostly in the media, used by politicians and pundits.

Simple words are useful for making political statements. Simple words can motivate people. Simple words are easy to chant or yell out. Simple words are good rhetoric device.

But simple words can also be misleading.

Dragon is not real. We do know what a dragon should look like. It is probably reasonable to say that a dragon comes from an egg. Job is real. The authors of this post have day jobs from which we would not like to quit. If you are unemployed for whatever reason, you might appreciate someone giving you a job that comes with a decent salary.

When economists talk about the labor market, it is about contracts that involve two sides—the supply by workers and the demand from employers. As long as contracting is voluntary, both sides benefit.

The talk of job creation, however, seems to be one-sided. Job are created by “creators”. Out of nowhere, these “creators” can create jobs that benefit workers. In most political contexts, two types of “creator” stand out: the private sector and the government.

Entrepreneurship is hard, and it takes effort to find and efficiently allocate resources like workers. But what motivates businesses to expand in the first place? Without the demand of consumers, there is no point of expanding. There are cases, of course, like Steve Jobs (no pun intended), whose company is so innovative that they “created” the demand of something that consumers did not even know they want.

These cases, however, are rare. Most businesses hire in response to higher demand for their goods and services. Government policy and regulation (or the lack of it), the global economic and political environments, consumer confidence and expectations, all play their parts. Crediting the private sector as the sole “job creator” seem to ignore the fact that in economics, many “causes” at a time are “effects” of previous “causes”.

Applying the same reasoning, we cannot single out the government as the sole “job creator”. True, if we believe in the logic of Keynesian fiscal policy, there is some multiplier effect even when the government project is as useless as digging the biggest and the most pointless hole in the world. But these are not socially productive jobs, not to mention the empirically elusive size of the multiplier effect.

With all that said, we are still theorizing the story about Cards Against Humanity, a private company, which had solicited $100,000 of donations to dig a big pointless hole in the ground.

(This post is co-written by M.C. Lo and Byron Tsang.)