Oh Dear George, Oh Dear.

Monbiot is fascinating today. He (rightly) looks at the claims of various investments, plans, schemes and so on as to their job creation.

He finds that such claims are wildly overblown.

But he manages to miss the main point, the important one.

Such job creation claims should be counted as a cost of such schemes, not a benefit. So it is possible to reject the logical basis of the arguments, rather than having to do the detailed research that he had carried out for him.

For example:

The 93 stores the forum studied were responsible for the net loss of 25,685 employees: every time a large supermarket opened, 276 people lost their job. This is hardly surprising. The New Economics Foundation has calculated that every £50,000 spent in small local shops creates one job. You must spend £250,000 in superstores for the same result.

Which of course means that supermarkets are five times more efficient in their use of human labour than small local shops are. For every £250 k spent in supermarkets rather than local shops four people are freed to go and do something else: wipe babies\’ bottoms, invent a cure for AIDS or become a human diversity coordinator. As a society we are richer by having those four more things, those four other things other than supplying us with retail goods, done.

Why is this such a tough concept for people to grasp?

9 thoughts on “Oh Dear George, Oh Dear.”

  1. “Wipe babies’ bottoms, invent a cure for AIDS or become a human diversity coordinator. As a society we are richer.”

    Except for the human diversity coordinator bit. If ever jobs can be seen as an obvious cost, it’s these New Labour public sector rubbish jobs.

  2. For every human diversity coordinator job created you create a Labour voter and the best bit is a Tory voter is probably paying for it.

  3. “Why is this such a tough concept for people to grasp?”

    Because you are wrong. Job creation, as a term in common usage, conflates three things.

    1. Requiring work to be done which otherwise would not have to be (running to stay still).
    2. Creating new opportunities to add value.
    3. Relocating work activity from one geographical location to another.

    Clearly 1. is a “broken windows” dead loss, and that is what you are thinking of. But 2 is the opposite — although it displaces less valuable work and quite possibly doesn’t result in more net employment, it’s still in the normal usage definition of “Created Jobs”. 3 is not a net job creation either, but if you are the recipient of new better earning opportunities it does not make you an idiot if you count it as a benefit.

    Tim adds: We can further refine this. 2) splits into two parts. New opportunities to add value that come about because of innovations, excellent, great. New opportunities to add value which are subsidised: bad, and the thing I’m really arguing against. Because the very fact of that subsidy means that they are adding less value than the previous unsubsidised activities: otherwise, why is the subsidy necessary?

    So my point still stands: thos arguing for the “creation of jobs” via subsidy are indeed committing the Broken Wndows Fallacy.

  4. It is a bit more complex that you have it, isn’t it Tim?

    In a locality where there is involuntary unemployment, it’s pretty easy to tell a story about positive externalities arising from job creation.

    Also I think your emphasis is slightly wrong – you are right that job creation resulting from a reduction in efficiency is, overall, usually, bad. But compare a job-creating decrease in efficiency to an equivalent reduction in efficiency arising from, say, an increase in rents (market power) – wouldn’t you say that the job-creating version is preferable, in that at least it probably bids up wages, conditions, and this may have helpful distributive effects etc. whereas the increase in rents just makes the owner richer?

    Why not say that the reduction in efficiency is a bad, but that job creation itself can be seen as something that partially mitigates that bad? In most cases it does not wholly mitigate it – so the net effect is still usually negative. If you just crudely call job creation a cost not a benefit, you may not get over you point about the importance of efficiency because to some people, if they respond to what looks like your denial of the benefits of job creation. I have not expressed this very elegantly.

    I don’t think the existence of subsidies is the thing to focus on either, because in certain situations (market failures of various stripes) subsidies may be required to reach the social optimum.

    Tim adds:This is all getting a little over egged. My basic point is not that jobs should not be created: it is not that sometimes subsidy can bring good results. It isn’t that this or that scheme is a good or a bad idea. It is this: when we try to do a cost benefit analysis of a plan we need to allocate, correctly, which are the costs and which are the benefits. Absent some pretty unusual circumstances (mass involuntary unemployment of those with the skills which will be used) the “creation” of jobs is properly accounted for as a cost, not a benefit.

    That’s it, that’s all, that’s the point. We then proceed to do our cost benefit analysis in the usual manner. Which will take into account all of the other things that you and others have mentioned.

  5. “the “creation” of jobs is properly accounted for as a cost, not a benefit”

    No, Tim, No!

    WORK DONE – time and effort expended in labour instead of leisure – is a cost, not a benefit.

    Creation of a Job does not directly translate to hours at the factory, does it? No, it does not: Not least because most job creation displaces other jobs, resulting in very little change in employment.

    Of course if the activity concerned is a subsidised or legislated pointlessness then it is not “productive” so it won’t be a benefit. Yes, right.

    But the better way to state the objection is:

    “Is it really such a great idea to set people to work doing this pointless nonsense when there is so much better stuff they could be doing – and would be doing – if this idiocy wasn’t subsidised or mandated?”

  6. Sorry, more quibbling (I am under the weather today so my brain may be letting me down).

    if I am evaluating a project that’s going to cost me £100m, and say £90m of that will be spent creating jobs, are you just saying that the costs/benefit analysis (let’s say I’m paying to have windows broken then repaired and £10m is just some fixed cost where the money is burnt) should just read costs: £100 benefits £0 – whereas you think Monbiot & others would have costs: £100m, benefits: £90m, net cost: £10m?

    So you’re just saying that job creation should not be subtracted from costs, it has to be left in the costs column (“properly accounted for as a cost”, as you put it)? Well, as you say, it is a straightforward point you are making – you might even be demolishing a straw man (although with Monboit, I’m wouldn’t be so sure).

    However, you may call it over-egging matters, but unemployment is a fact, and this being the case doesn’t it make sense to talk of some benefits from job creation? After all, if we were at full employment, the notion of job creation is nonsensical. It makes a big difference to the broken window fallacy whether those being paid to break windows have been diverted from doing something else worthwhile, or were previously unemployed. If they were previously unemployed, then at least they will spend their wages (much like an welfare transfer should not be thought of a pure cost).

    So, let’s say my window breaking scheme diverts some workers from otherwise useful employment but takes some off the dole queue. Might I not reasonably account for the scheme as costs: £100 (£10m burnt + £90m wage bill) benefits: £20 (a for the sake of argument sum, representing the benefits of unemployment reduction/ job creation). In which case, the way you have phrased things – “job creation should properly be accounted for as a cost” – is a bit misleading, in so far as at least here I have, I think reasonably, something in the benefits column under ‘job creation’.

    But perhaps I just need to take some Ibuprofen and go back to bed.

  7. Simple really, we need to work out how much the average person costs society when employed and unemployed. Costs will be greater when unemployed both due to benefits and correlated maladies. Thus the difference between these two costs is the potential social saving of employing someone. If creating a job for the person costs less than this value then society has benefited. Importantly, this applies whether or not the job is useful in itself.

    I think job creation is often put forward as an unalloyed good. It isn’t, but it needn’t be bad either. It might be a cost, but if it cuts other costs more then I’d recommend it.

  8. Luis and Ben:

    I have a nearly perfect solution to the entire problem of the shortage of jobs.

    Every time someone “does a job,” whether it is making a widget, supervising others making widgets, getting a galss of water, or separating the mandated “recycle” trash–anything at all, they are DESTROYING a job. Completing a job removes the need for the job to be done!

    Just think about it a bit. The key to creating the absolute maximum of jobs is for everyone to do absolutely nothing–or at least nothing with any possible value to its accomplishment.

    Economic insight is truly a wonderful thing.

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