Do Politicians Deserve All the Credit for Job Creation?

Instinctively, everybody knows that job creation is something really important, both economically and socially. In a way, we should "thank" the job creators. But who is it, exactly, that we must thank?

Based on many newspaper headlines, we might be tempted to believe that it is politicians and their spending programs that provide labour for the unemployed. Take, for instance, the famous 2009 Stimulus Package, a $787 billion spending program which the American government claims has created 2.7-million jobs over 22 months.

However, according to the Bureau of Labor Statistics, only 426,000 net jobs were added to the economy during the same period. The reason behind this apparent mismatch can be summarized in two words: creative destruction.

Capitalism is an ongoing and innovative process, in which new jobs are constantly being created while other jobs disappear. This is true in times of economic growth as well as during recessions. For example, in the prosperous years before the recession, 29.2-million jobs were being "destroyed" every year but 30.7 million were being created, for a net job creation of 1.5 million per year.

Conversely, throughout the 2008 recession, 26.6-million new jobs were added per year in the economy — dwarfing the 2.7-million jobs allegedly created by the Stimulus Package — while 31.2-million jobs were being destroyed each year, for a total of 4.6-million net job losses annually.

As a better economic structure emerges, it replaces an older one. That is the essence of progress. It is only when the symbiosis between total jobs created and total jobs destroyed results in a net job increase that we can talk about real job creation growth.

So, even if we are to believe that all jobs that governments in North America claim to have created have indeed been created (for the record, I have serious reservations about those claims), it remains a fraction of the total jobs created in any period. It is the thousands of private-sector entrepreneurs who created the majority of jobs, without the government's help.

If viewing the labour market as a dynamic process of creative destruction teaches us one fundamental lesson, it is that governments will never create as many jobs as the citizens they rule. It's a numbers game. If the private sector creates 90 per cent or so of the jobs in the economy, even in times of recession, governments should ensure that it thrives by implementing free-market reforms such as lowering taxes and allowing for a flexible labour market, instead of pumping gigantic sums of taxpayers money toward the remaining 10 per cent.

Bottom line: let the real job creators do what they do best, and leave them be. And this is not an ideological or philosophical statement, but, rather, it flows from a careful observations of the relevant statistics about the job market.

This column is dedicated to John W. Dobson, an incredible entrepreneur who died recently. He cared deeply about those issues, especially as they relate to job creation and entrepreneurship.

All statistics quoted in this piece are American statistics, simply because the equivalent ones from Canada are not publicly available.

Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.