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President Trump has been trumpeting about the benefits of a policy that increases employment. His policy is centered on creating more employment in America. His success would be measured in terms of the number of jobs that he will create or fail to create while being the President of the United States.
There is a problem with setting such goals. A wrong goal takes you on the wrong path. It is like trying to lose weight without paying any attention to nutrition. You will be worse off than where you started. However, throughout the ages, several politicians have repeatedly come to the fore promising more jobs. The people somehow get smitten every time and vote these politicians into power. In this article, we will understand why the mad race to create more and more jobs is a bad goal.
The dream peddled to the masses is that more jobs would mean more people get wages. More wages imply that people would spend more of their disposable income on buying goods and services. This would increase the total quantity of goods and services produced. This would lead to a rise in GDP and is good for the economy in general. Hence, increasing the number of jobs is a surefire way of enhancing the economic growth of the country.
The problem with this logic is that GDP is being defined as growth. GDP merely means more spending. Increasing the GDP does not necessarily make the economy better off. Every job that is created by the government requires money to be spent. More often than not, this money is borrowed on interest. Hence, the wasteful distribution of these funds provides jobs today. However, when interest payments have to be made, the GDP is reduced by a larger amount.
Creating employment is easy if you are the government. First, you have to tax people and create a pool of money that can be used for public works. Once this pool of money has been created, politicians come up with projects that have the most visible effect. Politics is all about theatrics. The bigger show of economic prowess there is, the more votes are likely to come in next time. However, one needs to observe carefully, what has happened is merely a redistribution of wealth with the politicians taking a huge cut in the process. It takes a little common sense to see that digging ditches in the name of government provided employment does not create wealth. Real wealth is created by increasing the efficiency of workers and creating more and more output with increasingly smaller inputs.
The problem with political theatrics is that the people working on the jobs and the bridges being built are clearly visible. On the other hand, taxing the money leaves people with lesser income. As a result, the unbuilt factories, the goods and services not produced are not seen by the people. Real wealth creation is hampered as a result of government meddling in the economic affairs of the nation.
As we have already seen earlier in this article, resources are transferred from the hands of productive people to the hands of unproductive people. In the name of providing employment, people are given jobs which can be conducted better by using technology or at a different geographic location. This is nothing but the most roundabout way of forcibly creating employment. This roundabout way would also lead to wastage and depletion of scarce natural resources.
Economic activity needs to be undertaken because it is beneficial. It should not be undertaken because it provides more employment. Also, activities that generate more employment tend to be labor intensive and therefore expensive. What is the point of creating more employment if the increased wages will be more than offset by an increase in inflation? The benefits of new jobs will be reaped only by a few whereas the perils of inflation will have to be borne by everybody.
Free markets provide the best mechanism for setting wage rates. Each person gets paid according to the hard working that they are willing to put in or the skill that they possess. Unemployment is created by government policy when they insist that jobs be created in a particular location or adheres to a particular minimum wage rate. When such measures are introduced, the government is bargaining to get more for a special interest group than they actually deserve.
To sum it up, employment is the side effect of economic activity. Pursuing it as the primary goal leads to horrible consequences! Consider the number of people we could employ if computers were banned in offices! Also, the number of individuals that could be employed if the machinery was replaced by manual labor! However, the idea sounds outright ridiculous.
It would be akin to going back to living in caves. The goal of full employment should not be pursued independently of labor productivity. An increase is employment is only good if it is accompanied by an increase in labor productivity.
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