Today, in front a joint congressional session, Barack Obama will talk about America’s weak labour market.
Politicians talk a lot about “jobs”, especially at the moment, since their own might depend on generating more employment for voters. Yet most of them remain uninterested in business – except, perhaps, when they leave office and look for a way to exploit their contacts. The rest of the time they seem incapable of understanding the link between jobs and business.
It is in fact very easy to “create jobs”: simply pay people to do things. The problem is finding the money to do so. For a job to be viable, it must generate enough additional income, or save enough money elsewhere, to cover its total costs – not just the salary but payroll taxes, administrative costs, additional workspace, employer contributions to healthcare and pensions, etc, etc, etc...
Or, to put it in economist-speak, the marginal revenue of each new job must be greater than the marginal costs.
So there are two ways to increase the viability of jobs: increase the marginal revenue or decrease the marginal costs.
Politicians seem obsessed with the first option. They think in terms of “stimulus” to increase the amount of money in the economy in the hope that will increase revenues – but there is no guarantee the money will go in that direction: much of it is spent wastefully or saved or used to reduce past debts or spent on imports.
Decreasing the costs of employing people is a far more efficient option. However, politicians seem determined to increase those costs, through increased taxes, healthcare contributions, minimum wages, regulation, etc, etc...
The bottom line is that viable jobs can be generated only by viable businesses.
Attempts to find quick-fix alternatives are counter-productive. If money is borrowed, it must be paid back. If money is printed, it is the same as borrowing from the future. If money is taken from viable businesses by coercive taxation to subsidise the unviable, it is destroying viable jobs to buy a little more time for those that cannot survive – the strategy that devastated the British economy in the 1970s.
If the politicians are serious about wanting more jobs, they should listen to the people who actually provide them – business. If they set us free, they would be amazed by what we could do.