Government and Jobs (Economic Development 101)
Jobs will flourish when you get government out of the “job creation” business and into the reducing government business!
By Joe Maynard[i]
December 14, 2015
There is a lot of talk lately in Arkansas about our state government creating jobs.[ii] In that same discussion we hear words like “economic development” and “workforce training.”[iii] Though this article will touch on those last two terms, it will mostly explain that it is not possible for government to “create” jobs. Though some government jobs are necessary, the math is clear that government is a “taker” and not a “producer.” By its very nature, government cannot “create” jobs other than those needed to run its own activities (and those at the expense of economic growth.*)
In application, there are two methods today where government claims “job creation,” the traditional method and the newer method–government incentives.
The traditional method of “claimed” job creation is when government directly hires more people because it expands government services[iv] or indirectly hires through funding infrastructure projects such as highways (performed by the private sector.) Even though more people may be hired to do these jobs, while doing so, this government activity crowds out private wealth activity as it places a perpetual tax burden on its citizens to cover the immediate and long-term costs of these jobs, not to mention pulling qualified people from the wealth-producing private sector.
Government incentives is the more high profile manner in which state governments (claim to) create jobs. It is basically the giving of its tax dollars collected from its citizens to certain private companies it alone determines are worthy. Sometimes state governments will attempt to bring in companies from outside their state. And sometimes they will simply give tax dollars to private citizens or companies already in their state. These include tax dollars to relocate, expand, or start a new business.[v] (A list of the top private company (corporate welfare) recipients of government tax dollars may be viewed on the Good Jobs First website.[vi] )
Now examine this second method of claimed job creation with some measure of common sense. If there is an existing company in, let’s say Oklahoma, and we in Arkansas offer our Arkansas tax dollars to the Oklahoma company to cause it to move to our state, two things are really happening.
First, the people working in Oklahoma become unemployed or they move to or drive daily to Arkansas and keep their job. Does that create new jobs?
Second, the Oklahoma company moves to Arkansas with the tax money paid in by the people in Arkansas, including the Arkansas business competitors to the Oklahoma company. Logic then follows that the existing Arkansas business taxpayer is effectively subsidizing its competitor. With those free dollars from the Arkansas business taxpayer, the Oklahoma company may then hire away from the Arkansas company, at higher wages, the Arkansas taxpayer’s currently employed skilled workforce (with dollars furnished by the Arkansas business.) Does this create more jobs?
Under this scheme, does the current unemployed population (including those in the new improved government workforce develop program) suddenly rush in and become employed? Not necessarily.
What may be a better approach to “applying its own government solutions to job creation” is for government to tackle duties they currently claim as their own: education, infrastructure, and welfare. If done correctly, what impact would this have on job creation?
Education and Workforce Training: The vast majority of companies in our state and elsewhere have need for good employees that can show up on time, pass a drug test, and have a basic understanding of reading, writing, and arithmetic. These are things we in Arkansas collectively pay almost $13,000 per student per year in our government K-12 education system monopoly (public schools.) How is that working for us? Why not do those well before promising other benefits from more government education (such as workforce training?) Is it realistic to think that yet another bureaucracy can educate and create a skilled workforce for private companies when the same system cannot do it in the previous 13 years educating the same person?
Infrastructure: Good water and sewer systems, adequate roads, public safety, etc. are requirements for stable and continued job creation. Spending money on trees in the median, bike trails, over the top art and public building architecture and layer upon layer of administration does not get this done. People who are unemployed do not really care about trails and trees and grand public buildings, as they prefer good job opportunities. (There must come a time when we say “no” to more federal government money which forces these kinds of bad ideas on Arkansans who need economic opportunity.)
Welfare: If a young person, and others, see the value provided by government benefits as a better option than the entry level jobs, what is the incentive to enter or to stay in the job market? As government more freely gives away what it takes from those working, there is little incentive for the able-bodied to struggle and work their way out of poverty. It is possible, but it is becoming less and less attractive. Why are there still “jobs Americans won’t do” and government benefits for those who will not do these jobs? We recruit foreign workers to do these jobs and pay Americans not to do them? This is where we are! Government is competing for the workforce against the private sector.
Lastly, who in government is so qualified and experienced that they can pick the correct long term (viable) companies to subsidize, without personal gain, which will hire the currently unemployed for any meaningful length of time? I would argue not one single person. This is the reason that we, as a state should follow the free market and limited government model that made this country the greatest producer of goods and wealth for all the people that the world has ever known. Elected people will not and cannot ever produce this result, regardless of the rhetoric or good intentions. As our Lt. Governor Griffin often says, “It’s not the icing (incentives), it’s the cake (tax, education and regulation policy) that is the problem.”
Despite the claims of “jobs created (or saved, right?)”, government does not create jobs by moving employed people from area to area or company to company. One company wins, others lose. Do you want your government to decide?
Educate K-12 PROPERLY, without MORE MONEY first, spend highway and infrastructure money properly, and quit giving working people’s money and Arkansas companies’ jobs away. Then we can have a productive economic development discussion!
*(For more detail on the basic economics discussed here, see the classic article from the Foundation for Economic Education –“Why Government Can’t Create Jobs.[vii])
The footnotes and links below contain a lot of good material, and you are encouraged to read them for more information!
[i] Joe Maynard is a manufacturer, employing over 150 people in AR and KS. He, like most business owners, prefer to train his own workforce.
“Sen. English helped set the tone for the legislation by insisting that the state retool its workforce development efforts as a condition for her being a deciding vote for the Medicaid private option in the 2014 fiscal session.
“My goal is that when (Preston [Dir AR Econ Dev Commission]) sits down and talks to a company both somebody outside the state, inside the state, he can say, ‘These are the things we’re doing to make a workforce available for you,’” she said after the bill signing.
[iv] “Hutchinson has authorized various steps to address the backlog, including hiring temporary employees, shifting employees from the Department of Workforce Services, shifting employees within DHS, lifting a hiring freeze on 35 positions at DHS and authorizing overtime for DHS employees. – See more at: http://arkansasnews.com/news/arkansas/hutchinson-decide-whether-resume-medicaid-terminations#sthash.4w0hLM17.dpuf
[v] To “create” jobs in the delta: http://www.arkansasedc.com/news/delta-regional-authority-state-and-local-partners-invest-108-million-arkansas-delta-economy
“Rarely does the public debate focus on how employment in other sectors is affected when the government seeks the $3 billion necessary to finance its program. These effects are important but, unfortunately, less visible because they are spread among hundreds, if not thousands, of employers.
“Government spending, including spending designed to stimulate employment, may be derived from three sources. The first is taxes. If individual income taxes are raised by $3 billion to fund our highway project, disposable income is reduced by $3 billion. Consequently, individuals will demand less clothing, fewer appliances, and so on. Private sector employers will notice and respond by laying off workers. Since most of us will agree that we can spend our income more efficiently than can the government—if only for the fact we do not have to pay a bureaucratic overhead charge—layoffs in the affected companies will exceed the employment added by companies constructing the new highways.
“If corporate taxes are raised instead of individual income taxes, they will eventually result in higher prices for consumers, lower real wages for workers, and lower returns for investors. All of these result in a decreased ability to buy clothing and appliances with the net result that unemployment increases, not decreases.
“A second source of funds is government borrowing, but this borrowing increases the price of lendable funds, which reduces the amount of investment in the private sector. Consequently, fewer new factories, machines, and homes will be built. Not only does this decrease in private investment slow economic growth, it results in additional unemployment in these industries.
“A final source of funds is the government’s central bank, which can create new money. However, this monetary inflation results in price inflation by eroding the purchasing power of the dollar. This decrease in purchasing power will eventually increase unemployment as well.
“Unfortunately, the political appeal of government spending stems from the fact that the jobs created are noticeable to the average voter, while the handful of jobs lost here and there are not attributed to the government spending program. Interestingly, from 1960 to 1988 there has been a positive, and statistically significant, correlation between public aid (as a percentage of GNP) and the unemployment rate. Conventional wisdom would have the public believe that as government “invests” in people the unemployment rate decreases. Yet the opposite is the case. For the same years there has been a positive, though statistically insignificant, correlation between government employment (as a percentage of total employment) and the unemployment rate. This suggests that as government work is created more jobs are lost elsewhere resulting in a rising unemployment rate.
“As a nation, we undoubtedly need government employees for such things as national defense, police protection, and administering our court system (though I do question our founders’ wisdom in relegating the delivery of first-class mail to government employees). But it is a fallacy of the Keynesian legacy that government can reduce unemployment by priming the pump with spending programs. Government needs to reduce spending and taxes in order to leave income in the hands of individuals who earned it and who can spend it much more efficiently than the government can.”