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.

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    $\begingroup$ Does this answer your question? Why is it good to create jobs? $\endgroup$ – Kenny LJ Dec 16 '20 at 4:25
  • $\begingroup$ 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. $\endgroup$ – Zsolt Szilagyi Dec 16 '20 at 14:11

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.

  • $\begingroup$ 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. $\endgroup$ – user253751 Dec 15 '20 at 19:04
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    $\begingroup$ 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. $\endgroup$ – user253751 Dec 15 '20 at 19:45
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    $\begingroup$ 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! $\endgroup$ – obscurans Dec 15 '20 at 21:55
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    $\begingroup$ @obscurans - This absolutely happens. It's called war and is has tremendous economic impact. $\endgroup$ – noslenkwah Dec 15 '20 at 22:34
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    $\begingroup$ @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! $\endgroup$ – user253751 Dec 16 '20 at 13:54

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?

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    $\begingroup$ +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 $\endgroup$ – 1muflon1 Dec 15 '20 at 19:24
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    $\begingroup$ @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. $\endgroup$ – Alecos Papadopoulos Dec 15 '20 at 19:40
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    $\begingroup$ 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. $\endgroup$ – 1muflon1 Dec 15 '20 at 19:50
  • $\begingroup$ "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. $\endgroup$ – Acccumulation Dec 16 '20 at 3:09
  • $\begingroup$ 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 ? $\endgroup$ – agemO Dec 16 '20 at 7:36

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.


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