The Tension Between Job Creation and Destruction

Michael Foster Blocked Unblock Follow Following May 18, 2014

On the one hand, politicians and laborers (both skilled and unskilled) talk about the need to create jobs. Whether only talk or backed up by actual attempts to make more jobs for people, the need for more jobs is a repeated refrain from this group.

On the other hand, investors, company executives, and engineers are working to remove jobs. Whether it’s by increasing productivity, automating processes, or finding new ways to cut costs, these groups of people are paid to destroy jobs. It is their job.

This isn’t an ethical or moral assessment, but a fact of accounting; when calculating the operating margin of a business, wages are a liability. Remove the need for wages, and the company becomes more profitable. Investors, as equity holders, are paid a portion of those operating margins. Company executives are given bonuses and raises when they grow those operating margins. Engineers are hired explicitly to automate and create less need for human beings to perform certain functions. All of these people are paid to remove jobs from the economy.

The only time when you see an expansion of jobs is when they are deemed necessary in a profit-making enterprises or when expanding operating margins is not the end goal of the operation. For instance, non-profit universities have seen an explosion in administrative jobs over the past few decades, because universities’ desideratum is not operating margin expansion.

The tension between these two groups of people remains underappreciated among non-economists, but it needs to be taken seriously if we are to understand what is happening in our economy.