The Myth of the Job Creators

Every decade or so a new a word or phrase becomes so popular and so over-utilized that it is rendered virtually meaningless through its overexposure. In fact, for much of the last decade the word "Entrepreneur" seemed to fall into that category. Captured by the outstanding success of people like Steve Jobs, Jeff Bezos, Bill Gates and Mark Zuckerberg, Americans, led by the popular and business media began to characterize the entrepreneur as a tech-savvy, risk-taking, swash-buckling savant of a business person. As a result of this national obsession on entrepreneurship, colleges and universities began offering degrees in entrepreneurship, policymakers passed legislation to facilitate greater entrepreneurial behavior, and even local communities started looking in the mirror trying to assess how "entrepreneurship-friendly" they were. At the same time it became evident that the young son who put up his capital to purchase and expand his father's local hardware store; the farmer who takes financial risks every day; or the local business person who quietly, but successfully owns and operates a small manufacturing plant are just not sexy enough to wear the label "entrepreneur."

Now the latest phrase being put on a pedestal is the "Job Creator." And not surprisingly, given the deep drop in employment since the beginning of the recession, politicians are trying to do everything they can for this new category of economic hero. In fact, in today's highly-charged political environment, it seems like every single piece of legislation at the state and federal level must be labeled as either beneficial or detrimental to the job creators. But who exactly are these job creators and why are they so important? Similar to the "entrepreneur" is there some special personal attribute that distinguishes "job creators" from the rest of us?

It seems reasonable to me that at its core a job creator is one who creates new jobs in the economy. So maybe the first step in understanding the job creator is to understand how exactly a new job is created. And at the heart of my argument on job creation are two simply economic principles: supply and demand. Simply stated, when the aggregate demand for your goods and/or services increases to the point where you may not be able to adequately supply your customers in a timely manner, you risk losing some of those customers to your competitors. Accordingly, the business owner has a choice: (1) risk losing some customers or (2) create a new job that will allow the business to better meet the increased aggregate demand of its customers. Viewed this way, the decision to create a new job is a simple, rational business decision based upon the increased aggregate demand for the business's goods and services. The more the demand increases and sustains the more jobs the business will create. Likewise, as we saw during the recent recession, the more the demand drops off, the more likely it will force business owners to make the similarly rational business decision to shed jobs to meet this new level of reduced demand. As they say... its just business.

But also bear in mind what this simple explanation doesn't suggest. First, it doesn't suggest that the creation of a job is an act of charity or benevolence. Jobs are not created as a function of kindness or goodwill. Nor does it suggest that providing a tax break or other fiscal incentive to a business will lead to new job creation. Unfortunately, politicians on both sides of the aisle seem to believe that such incentives will work, as that's the only real tool they have in their toolbox. So new incentive programs are proposed all the time for high tech jobs, green technologies, returning veterans, etc...

But if you agree with my simple explanation, the only factor that can truly drive and sustain real job growth is a significant increase in the aggregate demand for goods and services. Accordingly, while policies to lower the cost of business such as the lowering of tax rates, tort reform or regulatory relief may be helpful, they will be disappointing as job creation stimulants. On the other hand, policies designed to put more spending money in the hands of middle-class Americans might be more effective, as that is where true aggregate demand originates.

But what is most disappointing to me is the seemingly accepted view that these simple economic principles are somehow personified as individual attributes of the "job creator." And therefore satisfying or appeasing the job creator is the correct path to employment growth. To me this view is disingenuous, as it simply denies the economic reality of how jobs are actually created.

Another way to look at it is to ask, if the CEO whose business demand picks up and hires 100 new workers is personified as a job creator, what is he or she called when demand weakens and they are similarly forced to shed 100 jobs: a jobs destroyer?