Job Creation v. Increased Productivity


Thought for the day

‘Well chosen infrastructure projects contribute to job creation and increased productivity’.

Notice anything odd about this?   (Apart from the fact that it is a circular statement, since ‘well chosen’ is presumably defined by the outcomes achieved.)

Increasing Productivity

When we ‘increase productivity’ we enable the labour force to produce more.  This is normally done through investment in capital, and nowadays through increasing use of automation. When we are struggling to produce enough to meet demand, that is, in times of low unemployment and high demand pressure, increasing productivity leads to an easing in the economy, reducing inflationary pressures.  It is good.

However, in times of low demand – i.e. when we have high unemployment – increasing the ability of firms to produce more with less, may increase profits, but if there is not the demand in the economy to soak up this increased output, this is at the expense of reducing their need for labour.   Then, it is not so good, at least not for labour.  And, to the extent it is successful, increases the demand for job creation.

Job Creation

When do we wish to ‘create jobs’ – in times of high, or low, unemployment?    Clearly in times of high unemployment.   In other words, precisely at the time when ‘increasing productivity’ will lead to less job creation’.

‘Job creation’ and ‘increased productivity’ would thus seem to be incompatible goals for Government.  And hardly justification for expensive investment in infrastructure.  There must be a better argument.

Thoughts?

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