Do new jobs always contribute to the welfare of a country?

Question

In Sweden, where I live, I often hear politicians argue that it's good when new work opportunities are created, mainly because these will generate tax income for the state that in turn can be used to increase the general welfare of the country. For example, there's an ad campaign that one of the ruling parties currently are running where they take the example of a newly opened restaurant, how this has created job opportunities for a couple of people, while at the same time generated new tax income for the state that will go to things such as repairing roads, paying for healthcare, et cetera (if anyone interested, here's the campaign movie: http://youtu.be/rHr4iXymtFM).

Now, if you're creating a job where you sell something to other countries, I can clearly see how this would benefit the welfare of the country you're based in since money then is imported, making the country richer. However, when you create a job where you for example sell food to local citizens, aren't you just shifting money around? I understand that you need to get people to spend their money somewhere so that VAT can be taken out, but what if the food market already is saturated and people won't spend and more money on food even though a new restaurant opens? Are these jobs still beneficiary for the welfare of the country?

Answer 1

In your economic analysis I would focus on the good and services and the happiness they create (often called utility) rather than the abstraction called money.

Generally, jobs are good. More jobs means that people who were previously not creating goods and services start creating goods and service. More goods and services in a country is generally seen as a good thing.

But government job creation does not necessarily mean more and better goods and services. For example: if the government were to tax a computer company to the extent that they had to lay off 500 people and make fewer computers, then use the tax revenue to employ 700 people to dig holes for no reason, then there would be more jobs, but less wealth (fewer and more expensive computers).

One caveat, is that in serious economic downturns a group of economists called Keynesians believe that sometimes there is a self defeating cycle of pessimism that can only be broken by a large amount of spending and job creation. Some Keynesians contend that spending under these unique circumstances is beneficial even if that spending would ordinarily seem to destroy wealth. This is a somewhat controversial and complicated economic topic which cannot be explained adequately in this answer.

Answer 2

No. One example is Bastiat's "Broken Window" scenario: https://en.wikipedia.org/wiki/Parable_of_the_broken_window Or as a contemporary example, we might consider all the (temporary) jobs created for repairs & cleanup after say Hurricane Florence: obviously the money spent on that is money that isn't being used to create new things.

Then there's the saturated market: if for instance the "Big 3" automakers produce enough cars to satisfy demand (ignoring imports for the sake of simplicity), and an upstart Tesla comes along and starts building electric cars, the new jobs Tesla creates are - since the total number of cars that can be sold remains constant - balanced by jobs lost at the Big 3.

Finally, we might consider that a lot of economic growth has come from the elimination of jobs. Consider trying to make a modern telephone system work if every call had to be handled by a human operator, or how the banking system would work if every transaction had to be handled by a human teller.

Answer 3

To answer your question there are two "classes" of employment:

1. Raw production and improvement of goods and services, which adjust the real value of the product. These jobs need special skills or resources that can't be acquired elsewhere; if this condition is not met, these jobs are in danger of vanishing.
2. Jobs required to get the products in the markets, which adjust the perceived value of the product. These jobs tend to need special skills or resources that can often be acquired elsewhere; these jobs will exist as long as companies can get more money in per money spent upon increasing the perceived value of the product.

The first "class" of employment always tends to increase the welfare of the country. The second "class" of employment can work for the welfare of the country if healthy competition is in place, and against it if not.

The longer story goes something like this:

In the modern global world welfare of a country is the sum of a several factors e.g. social security, the talent pool of the workingforce and competition. Social security and the unemployment are closely connected, because social security enables people to spend time unemployed giving them better chance to find a job where they generate the most value.

This is important, because the world of employment is changing very quickly due to technological outsourcing and offshoring. Both deteriorating the value of professional skills currently possessed by the Western workforce with quickening pace. Employees whose expertice is lost to this kind of "inflation" usually have to take any job available, which will render them to a very unfair situation against the employers when negotiating the terms of their compensation and work conditions.

In markets with healthy competition this would not be that big of a problem, because the competition would force the companies to compete for the workforce with compensation and working conditions, and compete for the consumers with better products with more affordable price.

Unfortunately we live in a very different world, where most of this free pool of workforce with no-longer-valuable professional skills, usually end up working for low-wage employers, in positions where they can best benefit the company to market their products with ever higher price and to solidify the markets.

In essence welfare is built upon citizens ability to acquire commodities. Jobs that enables the companies to sell imported goods with ever higher prices can thus be considered working against the welfare of the nation. Of course permanent unemployment is not the right way to fight this. Instead encouraging the skillwise no-longer-valuabe workforce to compete against the biggest companies with new ventures and to re-educate themselves for the still valuable jobs, would be important factors for the long term welfare of a nation.

Answer 4

However, when you create a job where you for example sell food to local citizens, aren't you just shifting money around?

It seems by questioning that money being moved around has no benefit. However a useful analogy to think about is the blood flow in a body. Aren't youjust moving blood around? Of course thats important for the health of the body. Likewise money being moved around is healthy for the economy. Its only when money is moved around is work actually done and wealth distribution occurs - both good aims for a flourishing economy.

That does not mean that aren't bad ways of moving money around. For example to tax-havens.

Do new jobs always contribute to the welfare of a country?

Not necessarily. It can lead to its pauperisation. Take for example the growth of zero-rate contracts. This is the growth of precarity and insecurity in the work force eroding the gains that labour made in the first 3/4 of the last century. This is not good for the economy. Of course, arguments are trotted out that workers want 'flexibility'. But generally, most of the gains of this kind of flexibility is on the side of the employer who can evade responsibilities socialising the effect of these kind of practises to the state and the larger society.

Answer 5

This is not my strongest area, but I can come up with one situation where new jobs are not very good.

When the unemployment level is very low (~5%), new jobs would drag that number down a bit - creating a situation where employees have a lot of power over their employers, who cannot fire them if they're making trouble; there's no one else to hire! Also, when there are no (or too few) unemployed, it is easy to get a raise in salary, which could be devastating for the economy.

In Sweden, where I'm also from, I heard that Moderaterna was in favor of an unemployment level at ~4% and Socialdemokraterna favored one at ~6%. Now, I heard this a couple of years ago, so it isn't necessarily true any more.

Answer 6

No. Jobs do not always increase welfare on average. You asked about new jobs but the distinction between new jobs and existing jobs is not very important from my point of view. Every job is new if you look at a vast expanse of history.

You can assume that if the restaurant market is over-saturated then a restaurant will go out of business. If n restaurants exist, it means exactly n restaurants will continue to operate in at least the short term and possibly the long term and that this is not the over-saturation level and that the market is over-saturated at n+1 restaurants. If people are not forced to eat at a restaurant and the workers there are not forced to work then the transaction between the restaurant visitor and the restaurant worker increases the average welfare. You value the food at more than the price. The worker values the wages more than their labor. Both people benefit when there is no coercion involved.

If the number of restaurants increases

n_new ← n_old + 1

and as always

n_{over-saturation} = n_existent + 1

and restaurants are homogeneous (you are not replacing one large restaurant with 2 half-sized restaurants) then average welfare increased because customers increase welfare if no coercion was involved and workers increased welfare if no coercion was involved. This is true even if the economy did not grow and the population did not grow. It may be simply a change in preferences for eating away from home versus at home.

If coercion was involved in supporting the restaurant then it might not increase average welfare. If there is coercion perhaps people are forced or induced by the government to buy something at a restaurant so suddenly there are more restaurants and more restaurant workers. Since the people would rather have kept their money and avoided the restaurant meals in the absence of coercion, it is clear that they valued the money more than the meal so in the presence of coercion average welfare decreases. If a worker is forced to work in a restaurant when they are unwilling then there is a decrease in their welfare and since they are part of the average, the average welfare decreases.

For a more realistic example of coercion consider that people value the administration of justice (courts and judges). Taxes are collected by force to provide a justice system. The government controls the spending. If the government spends unwisely or corruptly then the value of taxes allocated to the administration of justice is greater than the value of the administration of justice. Government spending can be unwise because they do not have perfect information about the preferences of the taxpayers. It may be the taxpayers do not want the court house to be designed by an expensive world famous architect. Unfortunately you cannot purchase a small piece of the justice system for yourself at the price that reflects its value to you. Some purchases have to be coordinated by an imperfect government.

You said

"I understand that you need to get people to spend their money somewhere"

Perhaps we do not need to "get people to" do anything at all because they know their preferences best.

I would not assume that if a factory exports an object that it makes the exporting country richer. It is a misconception. If the labor and materials are worth 2 dollars to make the exported object but the export income generated by the object is 1 dollar (because there are many other countries selling the same thing for 1 dollar so you have no opportunity to raise the price) then your country has become poorer. Why would you export in this manner? Only when there is coercion involved will such an export happen. Perhaps the object was made in a factory that uses government subsidized electricity or a government subsidized interest rate was used to purchase the machinery or the workers are prison laborers. The business pays 0.75 dollars for materials but the subsidized inputs are worth 1.25 dollars for a total of 2 dollars. The object is exported for 1 dollar and since the business paid 0.75 dollars for its share of the inputs, the business makes a profit of 0.25 dollars. The taxpayers have a decrease in welfare. The unfortunate businesses that did not get a subsidized interest rate will complain about the part of their taxes that support the subsidy received by the other more fortunate businesses but there is little that they can do to change this. The subsidies are making the exporting country poorer and the importing country richer.

Is it the exporting country's subsidies that make the importing country richer? Not necessarily.

Even if there are no subsidies, the importing country is still getting richer. When there are no subsidies, the exporter stops producing and the importer buys the object from one of the other exporting countries at the market price of 1 dollar. The importing country might value the object at a value greater than 1 dollar so the importer experiences an increase in welfare. However, the market value is still 1 dollar so it appears that the importer's net worth did not increase. However, recognize that the importer's increase in welfare can be used to offset the need to spend money on an alternative means of generating the same amount of welfare. If we eliminate the need to make the alternative expenditure then the importer's net worth increased. Welfare and net worth are interchangeable when simplifying assumptions apply.

If the imported object is a consumable then the importer's net worth decreases when the consumption happens. Not all imports are consumable so importing isn't necessarily decreasing net worth. Consuming domestically produced consumables is also decreasing the net worth of the consumer so there is nothing inherent about the fact it was imported that decreases net worth.

If a thing (consumable or durable) was domestically produced there isn't necessarily more domestic output and more domestic jobs because if you import the thing then domestic workers are able to produce something else that is more rewarding. More importantly domestic workers are most certainly unable to produce something else more rewarding if the thing is induced by the government to be produced domestically.

To summarize: Exports do not necessarily increase wealth if the export is subsidized and imports do not necessarily reduce wealth; it is the subsequent consumption that reduces wealth if the object was consumable. Importing a thing can increase wealth if there are more rewarding opportunities than creating a thing that could be imported at sufficiently attractive price.

Answer 7

However, when you create a job where you for example sell food to local citizens, aren't you just shifting money around?

If you are, that is tremendously beneficial to an economy. If I get paid a dollar, then spend that dollar, and that person spends that dollar (in a scientifically sterile "ideal" environment, just for example, since that whole dollar wouldn't circulate like a perpetual motion machine), that single dollar doesn't just leave my pocket and move to someone else's, I have a tangible good or service as a result of my spending, as does the person who later spends that dollar.

This is what is known as a "multiplicative effect." This is why direct aid/assistance is considered much more stimulative than tax cuts. Under one scenario, money is spent, circulated and re-spent, repeatedly. Under the other, that money is often stowed away or hoarded, and does not move around as much or as quickly.

It is important to remember that when income is spent, this spending becomes someone else’s income, and so on.

Economics Online: The multiplier effect

You seemed more focused on the bringing in new money vs circulating money aspect, so I focused on that.

Obviously the quality of the job, itself, and the amount of productiveness/value added to the economy is going to influence how beneficial it is for the job to exist. A factory that paid employees starvation level wages where they still had to get economic assistance, and, potentially, cost the local economy by polluting or causing increased health issues for the citizens and employees would be a large net loss for a society. So, obviously, any job is not necessarily going to be helpful.

Employers are not going to create and spend on an employee if it's a "break even" proposition. The general rule of thumb is that any position will generate many times its cost to the company in value/productivity, otherwise companies would never have employees. If the job is created for purely economic considerations (not a crony or patronage type of position), and meets a certain minimal threshold for that society, then, yes, those jobs will be beneficial, if we're looking at it from the "new money" vs "circulating money" paradigm.