Tuesday 1 October 2013

Jobs are a cost

We are often told by politicians and interests groups how many jobs this project or that project will create, as if jobs are somehow a benefit of the project. But are they? At the Forbes website Tim Worstall argues that jobs are not a benefit of a project but a cost. How so? Well,
Start with it from the point of view of the individual: neither I nor you particularly want a job. We most certainly aren’t all that fond of having to do the work that a job entails. We absolutely love being able to consume things, of course. And we all view having an income as most useful in being able to purchase the things we want to consume. But we all also view the job, the work we have to do, as a cost of getting that income so that we can consume stuff. The job is the cost, the consumption the benefit here.

Now look at it from the point of view of whoever is doing the employing of that labour. They certainly look upon a job as being a cost: they’ve got to pay out the wages to get people to do it after all. The benefit is that they get that work done so that they can go sell the goods or services produced. But the job itself, that’s still a cost to them. We even record the wages they pay on the cost ledger side of their accounting books, not on the benefits or income side.

Finally, think of it from the point of view of the whole society. No, don’t start thinking about “full employment” and the like just yet. Think instead about labour as being a scarce resource. Which it is of course: and just as with any scarce resource we want to use it as efficiently as possible. Say, imagine, we have 100 workers and all 100 were working on the farms to produce the food that kept all 100 people alive. Now we bring in new technology to farm with and we only need two people working to feed all. Well, we could say that 98 of the people are losing their jobs and that’s a disaster. But hold on a moment, jobs are a cost. Jobs here are a cost of producing food and we've just saved 98 job’s worth of cost. What this actually does is frees up those 98 people to go and do other things. Like, ooh, build libraries, hospitals, start manufacturing industry, join the military and so on. Roughly speaking this is also what has happened to the North Atlantic economies over the past four hundred years or so. We've moved from having nearly everyone working the land to about 2% of us doing so. And that has freed the labour up to go and build all the other things that we now generally refer to as civilisation.
Now you may well say I enjoy my job, which means, most likely, you enjoy some parts of your job but not others. This just means that the good parts of the job increase the consumption benefits that occur because of the job but the bad bits of the job are still a cost. They are the crap you have to put up with to get the good bits.

One of the great advantages of technological improvements and trade is that they reduce the requirement for labour to produce a given amount of output. Increasing specialisation and the division of labour has the same effect. All these reduce the cost of jobs for a given level of output and thus work to make us wealthier. As Tim Worstall points out as you reduce the number of jobs in one area you release a valuable resource to be utilised in another area of the economy.

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