Irish Liberty Forum

The Fallacy of Job Creation: It Hasn’t Gone Away

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Why would we send our money to Kuwait when we can keep it in Carlow? Why would we create jobs overseas when we can create them here by developing our own sustainable long term energy sources?” [Minister for Energy Eamon Ryan] asked rhetorically.

“We have a very large land base, a very experienced farming sector that can deliver energy crops, we have a very large wind resource, we have a very large ocean energy resource.

“So we have the natural resources, we can tap into it, cut back our fuel bills and create jobs.

“That combined effect can see Ireland cut back fossil fuel use, cut back its carbon emissions and create thousands of jobs.”

Having taken note of the petty nationalism evident in the Minister’s reference to Kuwait, and many other issues I would raise regarding the arguments given, the above quotes provide me with a good opportunity to examine the ever prevailing belief in manual governmental creation of employment, something I’ve been interested in for a good while. Let’s go over some basic theory.

Briefly, the money directed by government to employ people in renewable energy is demand which is obviously not originating spontaneously from the market. In the market, the exchange mechanism serves to attract us to those occupations which satisfy the most urgent consumer desires. Higher remuneration resulting from more intense consumer demand produces incentives for us to supply labour where it is most urgently required. Importantly, the consumer does not desire a good or service because it was supplied to the market. Instead, it was supplied to the market because the consumer desired it. Consumer desires are the cause, productive employment the effect, and free exchange the mechanism.

Government-created jobs are not at all similar. Free exchange does not occur between worker and consumer, so the link between market supply and demand is severed. These jobs exist purely through government command: State decree is the cause, coercion the mechanism.

This seems clear enough, yet some people still believe that “creating jobs” is a good thing in itself. But I don’t see how this view can be maintained without completely disregarding the cost of these jobs, both in terms of capital and labour.

I assume that most people would agree with me that it would not make economic sense for the government to spend money employing people in ridiculous activities like digging holes and refilling them, or memorising endless lists of random numbers. I assume they would agree that the money would be better off not spent by the government at all, but left to be directed by the market. If that much is agreed, then presumably we can say confidently that justification for subsidies, if it exists, must be determined by what the workers are actually producing, and that merely stimulating employment is not evidence in their favour.

Since jobs are not ends in themselves, but exist to satisfy consumer desires, proponents of employment subsidies, regardless of the specific context, should avoid making this common mistake.


Written by Graham

March 6, 2008 at 8:39 pm

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