08 July 2012

Where Do Jobs Come From?

I find it remarkable -- and telling -- that neither candidate for president in the United States has articulated a good, substantive answer to this question. Platitudes and exhortation are not a coherent economic policy.

According to the McKinsey Global Institute the world created 1.1 billion non-farm jobs from 1980 to 2010. Think about that. 1.1 billion, and 164 million of those in so-called "advanced economies." How did that happen? Where did those jobs come from? How will we make the additional 600 million jobs expected to be needed globally by 2030?

These questions have very clear answers, at least conceptually, which can be delivered in an elevator speech. Why can't our presidential candidates provide such an answer? 

Talking heads on TV don't do any better. I just saw Lou Dobbs on Fox News rattling on about entrepreneurs and small businesses, which was pretty weak stuff. The excerpt below from a debate on Fareed Zakaria GPS on CNN today also illustrates the poverty of this discussion.

Where do jobs come from?

Jobs come from an expansion of economic activity, which is called economic growth. Where does economic growth come from? There are only a finite number of places. Any answer to the question about where jobs come from that does not invoke resources and innovation (but also effort and luck) is incomplete.

Any policies put in place to try to increase employment needs to explain how economic growth will increase, but also how the consequences of growth will be managed and sustained. Specifically, because the economy is in constant flux as we seek productivity gains through constant innovation -- which is necessary to expand economic activity -- there is a constant need to train and retrain the workforce to elevate skills. Under current trends, the world (and the US) will have an excess of low-skilled workers and a shortage of high-skilled workers. How will our leaders manage this churn? Someone should ask them. More "college" is not the answer.


  1. Roger, I don't think that's really quite true. Oh, he may not be saying it with proper reference to your blog post, but looking through his plan, there are a whole bunch of things that directly touch on your points. Some of them, like the tax reorganization, just cut costs, but that would free more resources to pay for jobs, innovation, etc. Others, like the reduction in regulations, would encourage innovation directly -- I know a lot of people who are in startups or who have run startups in the past who are finding additional financial regulation in particular are making new startups much harder to start up. The "Human Capital" part of the Romney plan specifically addresses retraining in a number of ways; I dont' see anything about teaching people specifically to be machinists and such, which we actually need, but retraining is specifically mentioned.

    In any case, the point is that I don't think it's factually correct to say "that neither candidate for president in the United States has articulated a good, substantive answer to this question." unless you're using the word "substantial" in a fashion unfamiliar to me.

  2. Part of the solution may be the elevation of the skilled trades to match the formal red seal 4 year apprenticeship programs that we have in Canada. (the Red Seal program is a standard that ensures skilled labour mobility between provinces)

    This consists of formal post-secondary education for ~8 weeks of every year (with examinations) and the rest of the time on the job learning under a licenced trade Journeyman.

    Skilled trades enjoys a respected status given the formal education and on the job training requirements. This has married well with efforts from our federal government to increase the interest and enrollment in the skilled trades. There's no question that they add value to society and are going to be in high demand going forward.


  3. Just remind me again, why is more "college" not the answer???

  4. OK, here is a question based on a discussion with a European politician on the Europ crisis: he states that the "Euro"-crisis is actually an "economic growth crisis". Debts currently provide a problem because economic growth is so small - if not negative.

    So, for example, would developping shale-gas in Europe - which would fall in to the "resources" category with regard to job creation as it provides cheap and abundant energy - be a possible way out of the mess we are currently in?


    What is your take?

  5. Step 1 -- stop lying to the populace about how government is the answer. It would be nice if the idiots were to actually recognize that Keynesian stimulus is antithetical to productivity growth, but at least they can stop spreading ignorance.

  6. .

    Jobs come from some enterprising individual seeing an opportunity to create wealth and hiring people to take advantage of that opportunity. The hiring decision is based on the expected bottom line of the person doing the hiring, be that a sole proprietor or a manager in some mega-corporation.

    With the Obama administration churning out tens of thousands new costly regulations it is little wonder that prospective employers are reluctant to hire when return on investment is both uncertain and likely to be negatively effected by regulations in the pipeline.


  7. -3-Jos

    Thanks, "college" does not focus on skills. See, http://rogerpielkejr.blogspot.com/2011/09/skilled-labor-gap.html.

    Post-secondary education includes, but is not limited to, university education. Thanks!

  8. -4-Jos

    A short answer is that lower priced energy provides a stimulative effect on the economy, by making more money available that otherwise would be going to paying for energy. Because energy is so fundamental to economic activity, lower priced energy can have a big economic effect. Shale gas in the US is the obvious example.

    A more complicated answer involves the need to trade off competing valued outcomes. Usually this sort of trade off is presented in Europe as energy vs. environment. It would be more accurate at the moment to characterize this trade-off as coal vs. gas!

    Cheaper energy would help the European economy. But getting it may harm other valued goals.

  9. Thanks, Roger, for another thoughtful post on a subject you've developed thoroughly over a period of time. Somewhat independently (you've shaped my own thought process in recent years), I posted along similar lines after reflecting on a Brian Vastag article in the Washington Post on difficulties early-career scientists are experiencing in seeking employment. You can find the post here:http://www.livingontherealworld.org/?p=683
    continuing best wishes.

  10. What about the element where taking one 50k/yr manufacturing job in the US, and turning it into 2 25k/yr jobs in a different country... is that a different element than simply 'economic expansion' as far as where jobs come from?

    Or, are we talking about the side-money 'saved' by not having to pay retirement/medical benefits becomes that extra money that in-effect expands the economy?

  11. If government is not the answer, we should not expect politicians to have the answers. Recognizing this, government must get out of the way. The natural gas revolution came about without government. Productivity improvements from automation, technology, and process innovation do not rely on government. Removing tax, regulatory, subsidy, and other economic distortions because of government is what we need. Innovation and entrepreneurship come from creative minds and courageous investments, both of which depend on liberty. Without liberty, why bother?

  12. More fundamental is that the President is the Commander-in-Chief of the armed forces and not the Commander-in-Chief of the economy. The office of the President doesn't have a lot o power to create jobs no matter how good a candidate's ideas may be.

  13. I am confused about how demand and internal economic variability fit into this argument. Certainly we didn't shed millions of jobs in 2008 because of a loss of effort, resources, or innovation. I suppose under your definition of wealth we could chalk it up to a loss of luck, but that doesn't seem too insightful. If weakening demand for goods and services amplified by some positive feedbacks can lead to a loss of millions of jobs, why does that not factor into our discussion of how we gain jobs?

  14. Eric -13-,

    With respect to 2008, consider the opposite of innovation. In other words, if innovation produces more efficient use of resources, what about things that cause less efficient use of resources?

    I think you could make a case that the pop of the financial bubble in 2008 was the realization of a lot of this anti-innovation.

  15. .

    "In other words, if innovation produces more efficient use of resources, what about things that cause less efficient use of resources?"

    The high speed rail project in California seems to be a case in point. Jobs that are net destroyers of wealth are not good.


  16. The basic question is “Can the enterprise provide the goods / services at a price that produces an acceptable return on investment (ROI)?”

    I don’t mean to be political in the following, just practical. And in that vein even though he can’t seem to articulate it, Romney knows bunches about job creation and ROI, as his involvement with Staples shows. What folks don’t realize is that as a Staples goes into operation, it does kill loads of small business suppliers who cannot adapt. But its efficiencies ripple through the economy as its lower prices allow its business customers to spend the savings on other needs. A Staples also reduces the cost of its offerings to consumers in general, giving them greater choice and the pleasure of new products that they would not have otherwise purchased.

    (Readers may substitute some company other than Staples in the example.)

    The vast majority of small business startups take federal policy, regulation, and taxation as a given because they have no influence over those facets. They have to focus on the costs of doing business within the constraints and policies of state and local jurisdictions in starting their operations, whether it’s a franchise or independent business. Even established businesses will move and expand outside of their home base if business conditions -- ROI -- deteriorate as merchant of death Carls Jr. has found.

    While I don’t know the specifics of the Alabama program for the Airbus manufacturing facility, I suspect the state is following the model South Carolina developed to capture BMW (Bubba Makes Wheels) in the early 1990s. SC minimizes hiring risk -- increasing the ROI potential -- by paying for and conducting all BMW training. If a candidate does not meet the standards or does not make the cut during the probationary period, the state bears the costs. SC restructured its technical colleges to focus on job-specific training for BMW through augmenting permanent staff with consultants / adjuncts / part-timers of all sorts to provide whatever training might be required. BMW assists by providing unique fixtures or equipment such as special purpose or proprietary robots to be used in the training. Details here (PDF). State policy has expanded the support technical colleges provide to include suppliers to BMW, Honda, and other suppliers to manufacturers.

    The jobs came indirectly from BMW’s innovation in design and performance, but directly from its goal to increase ROI. They ended up in SC because they figured the odds were good.

    Note that the approach that Alabama and SC have taken bodes ill for unions to the extent that another party -- the state technical colleges -- has assumed responsibility for worker training and “certification.” As long as workers regard wages as adequate -- the average wage at BMW approaches $70K -- the opportunity for unions to organize the workforce remains dim. That’s a feature, not a bug…

  17. This is a challenging area for both left and right. On the left Keynes "broken window fallacy" confuses "activity" with "wealth creation", and ignores the problem that even if "stimulus" worked, because of production patterns the activity is "stimulated" in China. On the right, the reality is given the growth of technology the marginal contribution of unskilled labor is trending *below* the cost of living for a family.

    Moral hazard created by the "safety net", or the income gap growing because of the skills gap. Left, right, and center we have to answer not just "where do jobs come from" but where will the average person work when only specialists prosper.