The mystery of job creation

by Russ Roberts on February 10, 2009

in Stimulus

Eric Boehlert wonders:

Does CNN's John King think construction work is done pro bono?

Apparently. Because asking questions about the stimulus bill, King,
perfectly echoing GOP talking points, wonders if a construction project
one mayor is proposing (a community wave pool) will actually create

The only real question is how does hiring a construction firm to build a community pool not create jobs? Seriously, we'd love to hear King's explanation.

Brad DeLong links to Boehlert and asks, as he often does:

Why oh why can't we have a better press corps?

I didn't get the talking points memo from the Republicans, and I too wish we had a better press corps. But I actually somehow think that John King just might have a decent question.

The idea isn't just to employ people. The idea is to employ more people than we're employing now. That's the claim of stimulus. It's not enough to spend money. It's not enough to hire people. The claim of President Obama and Brad DeLong and others is that by spending money, other things that wouldn't otherwise have happened, will happen.

Yes, constructing a pool requires workers. But if workers who know how to build a swimming pool are already fully employed or close to it, then building a community wave pool is just going to drive up the wages of construction workers. Those higher wages discourage people from building a pool in their back yard or paving their driveway. If that's the case, then NO JOBS GET CREATED. Jobs get moved around from the private sector to the public sector. But there's no net job creation. The word "net" in the previous phrase is really redundant. Job creation really is about net jobs not gross jobs.

Of course there isn't full employment in the construction business. I assume some people who know how to build houses can also build swimming pools. And a lot of people are holding off on that backyard pool or the new driveway. So maybe a lot of the people who are good at building pools are unemployed. In that case, jobs will be created by the public spending. But you would never want to count the number of workers working to build the pool as a measure of the number of jobs created. And it isn't ridiculous to wonder if jobs will be created by building more community swimming pools. It's a good question, not a stupid one. The answer depends on the unemployment rate among the people with the skills to do the job. The answer depends on the location of the public project and the local unemployment rate of the people with the necessary skills. The answer depends on the ability of people who aren't but who have the relevant skills to find out about the new opportunity.

The answer also depnds on whether the mayor puts the project out to bid to the lowest bidder or uses his friend's firm.

Once all those community wave pools get built, maybe the people who built them will want a nicer house and they'll hire even more of those unemployed construction workers. That's another way that the spending might create jobs. (This is the so-called multiplier effect which presumes that taxpayers don't reduce spending in anticipation of higher taxes in the future.)  But ignoring that possibility isn't the mistake that John King is supposedly making. He's supposedly missing the obvious undeniable so-called fact that spending and stimulus are the same thing by definition. But they're not.


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