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4. Should Companies “Care” About Job Growth?

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Do companies have a selfish or societal interest in creating jobs?

While different governance systems in use around the world place radically different weight on the rights of shareholders as against employees and other stakeholders, very few business initiatives are pursued with the express purpose of creating jobs. Indeed, there is very little consensus about whether it is business’s “job” to create jobs, and what kind. In a recent radio interview, a Boston entrepreneur noted, “I’d much rather create 100 good-paying jobs than 200 minimum-wage jobs.” Is she right, in your view?

While it is hard to imagine a boardroom conversation in which “creating jobs” is the primary focus, it is nonetheless true that many executives take pride in the ability of their companies to support communities, and they measure growth by overall employment.

Where are you on this question? With a new Administration here in the U.S. that is holding companies’ feet to the fire on this question, should companies rethink their role in job creation? Are they responsible to their own economics and efficiency, or to the larger system?

12 thoughts on “4. Should Companies “Care” About Job Growth?

  1. This is a really interesting question. From personal experience, I can say that I have never been in a meeting where we were planning an innovation or a platform extension where we used job creation as a goal–as an objective function of the exercise. But at the same time, whenever we would rattle off growth milestones–for investors, for our clients, or for our parents (!)–we’d always mention our employee headcount, and with pride.

    As I’ve been doing this research with the team, talking to management teams at world-class companies, I’ve seen this same phenomenon, but on steroids: A lot of leaders of first-tier companies take satisfaction from job creation, and yet they would seldom highlight this fact in an analyst call, or in a chairman’s letter. In fact, Donald Trump has done more than anyone else I can think of to move this issue front and center (though I disagree with his preferred solution).

    What do you think? Does your company care about job growth? Do you?

    1. OK, kind of weird to reply to myself, but a question occurred to me: We’ve been trying to study where companies come up with employment impact estimates (like this one, where Intel estimates that it will create 10,000 jobs:

      http://thehill.com/policy/technology/318533-intel-trump-tout-new-7-billion-investment-to-create-10k-jobs)

      We tried to get Intel to comment on this number, or how it was developed, or what it was based on, but no dice. What do you think? When companies publish these estimates, what are they based on? Are there rules of thumb they use for direct/indirect impact? This seems too important to be smoke and mirrors.

    1. Very interesting article and perspective! I found it interesting that NAFTA and other factors were successfully decried by Trump as primary contributors to loss of manufacturing jobs, when in reality automation (which was not scapegoated or even really addressed in his campaign) trumped (pun intended) other causes.

      I’m currently on the side that while automation does replace jobs in the short-term, it’s a job-creator in the long-term, with the number of eventual jobs created likely significantly exceeding those lost.

    2. The article is more or less in line with how I’m thinking about the matter (i.e. eventually there will be net job creation). I still haven’t really made up my mind, though…

      The authors of the book “The Innovation Illusion” have a chapter called “Capitalism and Robots”, where they offer their take on the whole “robots are going to eliminate tons of jobs” scare that’s been going on. They seem to be more optimistic, saying that the rate of adoption for radical technological innovation usually takes a long enough time for the economy to adjust, and ultimately results in a much smaller impact on employment than anticipated. Here’s what they say in the chapter, after discussing the societal panic in the 1960s when people were scared of mass unemployment due to machine and computer development:

      “…Automation, like previous technological shifts, destroyed jobs, but it also created new ones, and much safer and better-paid jobs at that. An automation blitz never occurred; the process took several decades as technology had to adjust to the composition of markets, companies, and several other aspects than simply the capacity of machines to substitute for labor. Just as in the industrial revolution, automation did not win merely by showing up. It progressively improved and adjusted to the economic, social, and institutional conditions for innovation.

      Contemporary prophets of the New Machine Age make the same mistake. They judge the speed and quality of future innovation on the technological creation they see today, not on how the economy works…”

      1. Playing the devil’s advocate for a moment, if I am a current factory employee and we end up net-net with automation and jobs lost/created, was there really any value in the automation? Sure, it does increase volume (Amazon, Google, etc) and efficiency, but there is the counterbalance of all the investment that went into educating technicians or engineers or managers to manage and troubleshoot automated processes, versus the less classroom educational and more skills based training for past manufacturing jobs.
        A part of me does wonder if when the economy adjusts, a college education will also become ‘commoditized,’ making the only way to succeed in the future to be with advanced degree(s). In this case, multiple degrees and hundreds of thousands of dollars later for the entry level employee, do we just delay job growth by 5-7 years as compared to skilled labor training?

        1. A very compelling counter argument. I agree that a comprehensive cost/benefit analysis of automation vs. skilled manufacturing labor over an extended period may show there’s not that significant of a long-term advantage for automation, but I think much of that (as most economic analysis) is contingent upon metrics used.

          But automation that enables scalability seems an inevitability regardless of any past training investment or even future training costs. For instance (much to Nate’s pt), automation of bank-tellers (ATMs) increased both non-manufacturing jobs in its sector and created new manufacturing and service jobs that hadn’t existed.

          I’m still unsure about an answer to commoditization of education….

          1. Good point! I wonder if there is a difference in outcome between automating technical/skilled labor jobs versus more service oriented jobs.
            In the case of the ATM, I would guess that service jobs (tellers) were the first to go, but tech and maintenance jobs were the first to be created. If cars were to go driverless, the service jobs (drivers) again would go first, but would technical jobs get created? Similar to the Prius/Camry example, the actual cars would be performance improving so it could net out.
            In the case of manufacturing, technical jobs would go first, but what gets created?

  2. I think this is a classic tragedy of the commons situation. Individually each company benefits from reducing headcount and suppressing wages to boost profits, but our overall economy suffers from unemployment, underemployment, economic inequality, and a consumer base with lower disposable income. I’m not sure what the tipping point is, but at some point I think this phenomenon could seriously contract the economy and accelerate a deflationary spiral.

    Addressing this problem requires meaningful industry collaboration and/or government intervention because only coordinated action can overcome this dilemma. And frankly, I think only government has the power and resources to make a real impact on increasing labor demand and improving labor supply. Policies could include tax incentives; changing accounting rules to favor labor expenses; mass employment programs such as those during the Great Depression; a mandatory draft and reimagining of the military’s mission to include vocational training and post-service employment readiness; universal basic income; expansion of SBA and other lending programs to provide abundant and inexpensive capital for job-creating investments; block grants for state and local economic development (with elimination of zero-sum competition for corporate relocations); large investment in infrastructure not only to create jobs but also to improve people’s ability to commute and participate in larger labor markets; free or highly subsidized college tuition and vocational training; programs to relieve caretaking burdens (child, elderly, disabled) so caretakers can go back to work; sensible immigration reform; enabling people receiving public assistance, including public housing, to easily transfer benefits between states in order to facilitate labor mobility; creating large grant programs to fund technology commercialization from universities and government labs; and requiring public disclosure of employee headcount and related data for all entities public and private.

    In sum, I think it is challenging to overcome the raw microeconomic calculus of profit maximization that places downward pressure on employment at individual firms, but with the right macroeconomic policies in place to incentivize new firm creation, labor participation, and employee education, a more robust labor market and confident consumer base can emerge.

  3. A recent UChicago economics PhD student wrote one of my favorite papers on this topic (https://www.gsb.stanford.edu/sites/gsb/files/jmp_simcha-barkai.pdf). In it, he argues that reducing labor costs through cutting jobs is an inefficient market solution. In it, he provides support for the case that a decline in both output as well as consumption due to the decreasing use of labor in order to try to improve markups.

  4. Most publicly traded and major companies do have, at least to me a societal interest in creating jobs becasue that would mean that the company itself is growing and there are jobs to be done that need people to do it.

    However, again as mentioned in my previous submission I believe that job creation if its a societal interest it has to be done over a period of time. Short term boosts of job creation do, at least to me, follow the economic cycles and don’t necessarily add to the stable long term job creation fueled by long term investment opportunities.

  5. I think companies should have a tax incentive to create new jobs. Moreover, in addition to the usual financial statements companies I believe that companies should provide detailed information about the types of jobs they have created and destroyed each year. This focus on job creation (more reporting, and with a tax incentive), may help companies to change their mindset from job destroying innovations to job creating innovations. The tax incentive should also focus on real new jobs created by organic growth which is different from increasing the number of employees by acquiring a competitor.

    Making this happen would be very complicated for various reasons. Should we provide a tax incentive only for the direct jobs created by a company or should we also take into account indirect job creation ? Should we provide a tax incentive for jobs created domestically or for all jobs created ? (Doing so for domestic jobs only may not be aligned with WTO rules). Politically, I doubt it would be easy to implement in the US because campaign finance laws give too much influence to special interest who have a purely financial interest and no real motivation to create jobs.

    That said, regardless of the complexity of this change, I believe that it is necessary because we are moving towards a world where not enough attention is given to job creation. This is not sustainable and will create more and more political instability, protectionism, and wars, if not addressed properly.

    Since companies will not change their behavior unless it pays to do so (less tax, or a better image), I believe that a tax incentive and a stronger reporting on job creation is necessary.

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