McKinsey Quarterly’s “Five Myths about How to Create Jobs” (free sub. required) had many substantial points.

Fixing the economy is not going to be quick.  McKinsey makes the point that the US economy “would need to create more than 200,000 net new jobs each month for the next seven years” in order to have the unemployment at a “normal” 5% level. This is about the level usually accounting for people between jobs, seasonal workers and the like.

The five myths:
Quick Fix
Small Business
High Tech Saves
Higher Productivity costs jobs
Exports

The key to boosting employment quickly is to help small businesses.  McKinsey makes it clear that during previous booms in the 1990’s that it was large multinational corporations that had the greatest growth of employment, not the small business. This was due to the fact that it took large companies to deliver the electronics and computers driving the last few market expansions. And, in the boom of ’02-’07, the real estate, construction and health care industries lead the charge. All of which contain both Large and Small businesses. So to put the task of employment on just small companies is missing a lot.

Proposals to provide tax credits for small businesses that hire people introduces an administrative burden (you have to apply for these credits) that only businesses that were going to hire folks anyways will endure, so you’d be simply paying people to hire people they were going to hire anyways. Not a good solution for sure.

Some politicians think that high-tech jobs will solve our employment crisis. McKinsey goes on to explain that biotech and green industries only represent 0.05% of the employed.  So, doubling or growing 10 x more employees in these sectors (not likely and not quickly) is still less than a 1% solution. So to ask for such a small industry to rescue the economy is simply ridiculous.

Fourth myth: higher productivity leads to less employees. McKinsey points out that in the industrial revolution of the 19th century, worker productivity doubled and wages increased while lowering prices. Now with that in mind, with investment companies can make productivity increases, lowering costs so the firm can lower prices, which increases the demand for products so the firm needs more workers to satisfy the demand. This equation doesn’t work any other way.

Fifth, that increasing exports will revive manufacturing employment. Here we have an interesting and, as McKinsey explains a “painful” argument against the myth. We live in a relatively free market. Manufacturing jobs tend to gravitate to where products can be made cheaply (with several notable exceptions being automobiles, plastic containers, food products), and manufacturing jobs have been in a decline in this country for many decades because workers elsewhere cost less, expect less and deliver quality product to satisfy demand at lower prices. So once the export level normalizes, the employees brought on to respond to a surge of export demand, would be unemployed again. Certainly not sustainable.

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