12 Nov 2008 jtauber   » (Master)

X will cost Y jobs

One type of clause that I have long had an issue with is that of the form

X will create Y jobs

which I most recently read in descriptions of the newly passed proposition for a high-speed rail project in California (which will, supposedly, create 450,000 jobs)

The problem is the assumption that job creation is a benefit. The benefit of the high-speed rail project is presumably supposed to be energy-efficient transportation that will reduce greenhouse gases. I'm all for that. But if you can achieve that with 350,000 jobs that's actually better than taking 450,000 jobs to do it.

Say two start ups are founded and one can build the product with 10 people and another will take 20 people to do the same thing. It seems crazy to say "well the second company is creating 10 extra jobs". No, the second company is wasting 10 jobs. Those people could be doing something more productive (either within the company or somewhere else).

And that gets to the heart of the matter. Creating jobs means taking people away from doing something else.

"What about helping unemployment?" you ask.

What are the chances that the 450,000 people that will work on the California rail project, will all otherwise be unemployed? Pretty slim. Now, to the extent that otherwise unproductive people are made productive (and are paid accordingly) then that is definitely a benefit.

Who knows, maybe all 450,000 people will be doing something more productive than they otherwise would have been doing. But the articles don't say "X will employ Y people more productively", they just say "X will create Y jobs" which, taken as is, is a cost, not a benefit.

I've suggested before that many precepts in economics come down to the concept of opportunity cost. This one is no different.

And, of course, this is all just economics 101. Go read Hazlitt's classic Economics in One Lesson. There's a nice treatment of the "make-work bias" in Bryan Caplan's excellent The Myth of the Rational Voter.

Let me finish with a classic story:

An economist visits China under Mao Ze dong. He sees hundreds of workers building a dam with shovels. He asks: 'Why don't they use a mechanical digger?''That would put people out of work,' replies the foreman. 'Oh,' says the economist, 'I thought you were making a dam. If it's jobs you want, take away their shovels and give them spoons.'

UPDATE: I actually preferred how I explain somethings in a comment below in response to a question so I thought I'd bump up my response into the main body:

whether diverting those 10 people to that startup is a good thing ultimately depends if the start up produces something worth that diversion. It is not prima facie a good thing just because it's using up 10 people. Similarly, the diversion of 450K people to build a high-speed train system may be a good thing (and hopefully will be) but would not be because it diverted 450K people, it would be that despite the fact it diverted 450K away from other things, it was still worth it for the benefit of having the train system.

Syndicated 2008-11-12 05:53:34 (Updated 2008-11-12 06:55:01) from James Tauber's Blog

Latest blog entries     Older blog entries

New Advogato Features

New HTML Parser: The long-awaited libxml2 based HTML parser code is live. It needs further work but already handles most markup better than the original parser.

Keep up with the latest Advogato features by reading the Advogato status blog.

If you're a C programmer with some spare time, take a look at the mod_virgule project page and help us with one of the tasks on the ToDo list!