Job Creation Myths

Another provincial election underway here in Ontario now and the promises of jobs, jobs, and more jobs re already spilling out of the politician’s mouths. Provincial Conservative party leader Tim Hudak is promoting his “Million Jobs Plan”, Liberal party leader Kathleen Wynne is promising a continuation of subsidies and grants to specific industries and firms to create jobs, and NDP leader Andrea Horwath has still to formulate her policy.

While we can argue about the merits of each party’s program, one thing is clear: politicians clearly believe that anything that creates jobs is good, and each leader believes his or her program will create jobs while their opponent’s will cost jobs.

The idea that anything that creates jobs must be good is so ingrained in our consciousness that many people have ceased to think rationally about the subject. Enhancing labour demand by creating jobs doesn’t necessarily mean that either economic growth or welfare is enhanced. There are only so many workers to go around and when one sector or industry gains jobs, others may lose. There is an adding-up constraint for labour in the economy as a whole.

In an economy with a slack labour market, it makes sense for politicians to put forward job creation initiatives. When the economy is healthy, these policies may exacerbate labour shortages by encouraging workers to move from one sector to another – moves that take time and which can cause labour shortages in the sectors from which workers have moved. This means that, in the long run, all that may happen is that workers will move from one sector another, but that overall there will be no net gain in the total number of employed workers.

Jobs are a cost, not a benefit. The next time you hear a politician talk about job creation, think about what they have in mind. Will they be putting people to work doing things that are beneficial to society as a whole, or are they rationalizing job creation through inefficient and costly initiatives that will yield little net benefit to our welfare?

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