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Creating Jobs vs. Creating Wealth

by Joe Calhoun

The author begins by illuminating the fact that government policies are often evaluated by how many jobs they create. Restricting imports, tax preferences and loopholes, and even wars are described positively by politicians for creating jobs. The video explains that this loses sight of a more important goal, wealth creation. Job creation can be a means to this end if the jobs being created provide value, but a focus on job creation rather than wealth creation can lead to public support of policies that actually destroy wealth.

After explaining the importance of jobs creating value using a humorous example of workers building a dam with spoons, the author explains that market wages direct labor into high-valued employment. When wages are determined by markets, employers and workers must consider the opportunity cost of labor. Workers will be attracted to where they create the most value and earn higher wages, while employers will actively seek ways to produce goods and services with fewer workers. This frees scarce labor for more valuable uses.

The video continues by debunking the fallacy that destroying wealth to create jobs is welfare enhancing. Creating or protecting jobs through the destruction of resources, or trade barriers, takes scarce labor resources away from more valuable resources while reducing wealth in society.

The video ends by explaining that government jobs are a cost to society because they take workers away from activities that would create value in the market. Often times these jobs are considered benefits in analysis rather than costs. The relevant question is not whether a government activity will create jobs, but rather if those jobs create more value than what the workers would otherwise be doing.

Creating Jobs vs. Creating Wealth

Creating wealth is more important than creating jobs. Job creation is only valuable if the value created by the workers exceeds the value the workers would produce in other activities.

from Creating Jobs vs. Creating Wealth (2000)
Creator: Dwight R. Lee and the Stavros Center for Economic Education at Florida State University
Posted by Joe Calhoun