Jobs Jobs Jobs! Why they’re a cost, not a benefit

Not all job-creation schemes are created equal

September 01, 2011

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A few years ago, I was riding my bike home and watched a man throw a bag of fast food packaging out the window of his car. Being the helpful sort that I am, I picked it up and returned it to him at the next traffic light. I asked him why he thought it was all right to throw garbage into the city streets. His answer was, “Who cares? It’s job creation.” I’ll spare you the details of the rest of our conversation, but it serves as a handy window into discussing job creation in an overheated economy.

We can’t seem to shake the idea that anything that creates a job is good. In this year’s federal election, you’d have been forgiven if you thought former Liberal prime minister Jean Chrétien was back, given the rallying cries of “Jobs, jobs, jobs!” Each party claimed that its policy program would create jobs while the opponents’ program would cost jobs. In a similar effort to build political support, environmental groups publish an endless stream of reports claiming that policies designed to reduce greenhouse gas emissions (GHGs) or increase renewable power generation will create green jobs. Opponents of those same policies, or defenders of so-called brown jobs, speak about the number of jobs that will be lost to environmental regulations and policies.

The problem with all of this push for jobs is that policies designed to enhance labor demand are not likely to enhance economic growth or our overall well-being. Think of green jobs – the whole point of the spin is to build political support for effective environmental policies. However, once you stop looking for the environmental policies that do the most good for the environment for each dollar spent, and start looking instead for those that employ the most workers while helping the environment, the economy becomes less productive, and inherently less sustainable. Worse, since you are hiring more workers to meet the same environmental objective, you get less of what you were trying to achieve. If it’s politically challenging to get dollars for environmental programs, it makes sense to spend the dollars that do get devoted to that task in the most productive way.

Now, if you’re still reading and haven’t thrown your magazine down in disgust at an economist trying to put people out of work, here’s an analogy to push your thinking. Suppose you run a business, and you have two bids on a project that both deliver the same product, but one uses 30 per cent more labor hours and comes in about 15 per cent more expensive overall than the first. No business manager is going to choose one bid over another simply because it creates more jobs. That’s because jobs are a cost, not a benefit, to the business owner – especially if the product is the same. Think of this the next time you see a table comparing jobs per kilowatt-hour of energy, or jobs per barrel of oil produced – roughly, these statements translate to more expensive energy.

Running a country is not like running a business, but there are some similarities in the way we should think about labor. An economy like Canada’s has a relatively fixed supply of workers, and while labor is mobile between cities and provinces, it takes time and money to get people to move. In a market system, if government policies are creating more green or brown jobs than would otherwise be created, other segments of the economy face a tighter labor market than they otherwise would. In a recession, labor markets are slack, so the costs of these policies are small, and they may even have social benefits. Carry the same policies into a healthy economy or into a boom, though, and you have a problem.

In a healthy economy, contractors working to install solar panels might otherwise be working as roofers. Electricians hooking up solar systems are not available for other work in new subdivisions. This is not exclusive to green jobs. Consider the province’s Bitumen Royalty In Kind or BRIK program. On the day the processing contract with North West Upgrading Inc. was announced, Alberta Energy Minister Ron Liepert celebrated the move as a job-creation vehicle.

With another oil sands-driven boom underway, every one of the long-term jobs created by the BRIK program could make the labor crunch a little bit worse. The tight labor market will hit employers and consumers hard, while benefiting workers who are able to command higher wages than they otherwise would. In other words, it benefits some, but costs others. Since you are not actually creating more workers when you create more jobs, in the long run the market will balance out. University of Laval economist Stephen Gordon sums this up well: “The net employment effects of most economic policy initiatives will be roughly zero: jobs lost in one sector will be made up in another,” and vice versa.

So, why do you hear so much about jobs if it’s all wrong? Well, even if the economics don’t make sense, it can still be a good political strategy. Those who gain a new job or lose an existing one are easy to show in TV ads and newspaper spots, while those suffering from the offsetting effects are harder to pin down. Governments can easily show people working at a new solar panel factory or a new upgrader as proof that their policies are driving employment. Conversely, those whose businesses suffer because of higher labor costs are dispersed, and it may be harder to tie their plight to a single policy change.

We are left with an irrefutable fact, one on which the future of Alberta’s oil sands industry turns. Labor is a finite resource. In boom times, there are fewer workers available at any given wage rate than would be available during a recession. Executives take note: you can’t use a worker to do two things at once.

Andrew Leach is an Associate Professor at the Alberta School of Business. He blogs on energy, environment, and oil sands issues at http://www.andrewleach.ca and is on Twitter @andrew_leach

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