On "job creation"
By Arnold Kling
the US lost 44m jobs in the last two decades of the 20th century, but simultaneously created 73m private sector jobs. A stunning 55 per cent of the total workforce was in new jobs by the turn of the century, two-thirds of them in industries that paid more than the average wage.
Pointer from Mark Thoma.
The headline placed on the op-ed was “The free market is not up to the job of creating work.” And, indeed, Zuckerman points to the dire employment situation and advocates two government policies: an “infrastructure development bank,” and a research and development tax credit.
Some thoughts on job creation:
1. As Bryan Caplan points out, it is bad economics to think of jobs as scarce. He calls it the “make-work” fallacy. Thinking of jobs as scarce inverts the notion of unlimited wants and limited resources. Our labor time is one of of the limited resources. We should not be rooting for lower productivity and more work. Instead, we should be rooting for higher productivity and less work. However, in a complex, modern economy, it is very difficult for individuals to view their own situations through the lens of unlimited wants and limited resources. To an ordinary individual, particularly right now, it does indeed look as though jobs are scarce and the creation of a job is a wondrous thing.
2. To me, a “green job” means substituting labor for energy. Do not root for “green jobs” unless you would like to see a much lower standard of living.
3. As Zuckerman’s statistics demonstrate, the free market does a fantastic job of reallocating labor in ways that tend to increase earnings. In that sense, “job creation” is something that the free market does really well.
4. Right now, the free market is Recalculating how best to use labor (and other scarce resources), following the collapse of a financial and real estate bubble. The challenge for government policy makers is to out-smart the market and come up with ways to use unemployed resources. In the simple Keynesian model, all the government has to do is increase spending. In the Recalculation model, it actually has to think about where and how to spend. Or, better yet, cut payroll taxes and let the market figure out where to expand. So far, I would say that the simple Keynesian approach is working only in the minds of the simple Keynesians.