Job Creation

With the unemployment rate remaining persistently high at 9%, politicians seem intent on passing legislation that will create jobs. Never mind that job creation legislation hasn’t worked for four years now. What the job creation rhetoric fails to recognize is that jobs fall on the cost side of the ledger. The benefit is what jobs produce.

When Congress and the president talk about upgrading infrastructure, or “investing” in solar energy, they talk as if the jobs created by these projects are a benefit of those projects rather than a cost. If the benefits of those jobs are less than the cost, the creation of jobs saps the economy of value, and hinders the recovery rather than enhancing it.

When jobs are created, the money to pay workers has to come from somewhere, and those jobs are a drain on the productive part of the economy. Job creation is worthwhile only if the value of what the jobs produce exceeds the cost of the labor.

The same is true in the private sector. Any business recognizes that its payroll is a cost to the business. Private sector job creation is good because businesses only hire employees if they anticipate that what the employees will produce will be of greater value than what the employees cost. The private sector will not create jobs unless those who are hiring also anticipate that those jobs will add value and thus make the economy more productive.

We need to drop the job creation rhetoric, because mistakenly characterizes a cost as a benefit. If someone tries to convince me that a solar energy project will add value to the economy, at least the argument is reasonable. If someone tries to convince me a project should be initiated because it will create jobs, the argument that this is a benefit is just plain wrong.

Randall G. Holcombe is a Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America (edited with Benjamin Powell); and Writing Off Ideas.
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