26 Sep 2013

Jobs create costs and sometimes create benefits

I've said this many times, but I'm going to elaborate a few reasons for this statement.

First, you have to consider perspective. Everyone benefits from THEIR job, given that they are willing to trade their time (and some risk) for the cash and other benefits from a job.

Second, you have to consider basic economics. "Something" is good if its benefit exceeds its cost. Remember that costs include opportunity cost, or the cost of NOT using resources in another way. As an example, note that you can turn a "free tree" into a toothpick, but you can also turn it into some firewood, lumber, or even a place for animals to live. If the benefit of these are $0.05, $10, $200 and $50, respectively, then using a "free" tree for lumber has an opportunity cost of $50 (firewood) and net benefit of $200-$50-$0 (free) = $150.

Third, you have to separate voluntary from bureaucratic. Lots of businesses hire workers because their production is worth more than their wages. It's usually governments that will tell you to work for free (conscripted army) or tell others to hire you (various quotas).

Taking these ideas together, we can see that private sector jobs create benefits for both sides (employer and worker), which is the definition of benefits to society.

In contrast to this, you can have public-sector jobs that do that (air traffic controllers), jobs that create costs without benefits (DEA officials), and regulations that create jobs that would not exist in a free market, i.e., "green jobs" that are subsidized into existence,* jobs to meet a regulatory obligation (staff to file paperwork), or jobs that create benefits by destroying others wealth (lobbyists).

This last list may give you an idea of jobs that are not only costly, but value destroying. (Note that I have said that there are some good government jobs; this is why I think government can be part of the solution :)

Bottom Line: All jobs come with costs; some create value in excess of costs, but only the government can force jobs into existence that destroy value.
* I tell people who say "we need more jobs" that we can do that very easily. Just hire another 5-10 people to sit behind the counter at Starbucks, at desks at Merrill Lynch, or behind the controls of an airplane. You can CREATE as many jobs (and costs) as you want, but they won't make sense unless they create value.


  1. Fair enough argument; makes sense.
    On a more "macro" perspective, I'm really curious to see what the employment rates and income distribution will be in 10-20 years. It feels like the current trajectory of high unemployment / underemployment and low wages for the majority are becoming the new normal. I don't predict much of a change on that front - but maybe some clever innovations will evolve to mitigate the lack of hard currency spending power, and to constructively utilize some of the increasing amount of "free" time that many people will have. Interesting times ahead!
    Sorry for the rant; too much for a comment - I'll continue this one off-line with you.

  2. Good question. On the one hand, one line of thought says that inequality is going to get even worse. On the other, an exit from the cash economy to the barter or "experience" economy may free people from the burdens of inequality -- assuming that they can still afford food, shelter, healthcare, etc.


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