Let's Create Jobs........

Sounds like a good idea: create jobs.

Like most things, though, there is a catch. Let’s say you have a Billion dollars in your pocket – every year. And, being a kind and generous sort, you decide to create some jobs. How many jobs can you create? Well, let’s assume that you start a company and you are going to pay everyone a $50,000 salary. So, you could employ 20,000. Well, actually, no. Because you need to pay Social Security and Medicare, every $50,000 salary will actually mean about $57,000 per person. Plus state taxes of perhaps 1 or 2%. So, let’s call it $58,000 per $57,000 job (though the employee only sees $50,000). So, you can create 17450 jobs.

So, why can’t the government create some jobs with all that tax money they collect and solve the unemployment problem?

The Federal government collects almost $3 trillion in taxes and such every year. That translates into 51 million ‘$50,000’ per year jobs. Problem solved, right? Well, not exactly. Because it seems that the numbers don’t quite work that way.

First, the government (any government) isn’t quite this efficient. Because of systemic inefficiencies, as well as the obvious cost of the bureaucracy that is handling the money, the ‘rule of thumb’ figure for the cost of a basic job in the federal government (that is, if you say this will require 100 people, the number you multiply 100 by to reach the annual labor cost) is $65,000 (or more, depends on which department).

So, the translation is simple: every time the government collects $58,000 in taxes, it deprives the free market economy of the money needed to fund a real job. To create a job, the government then needs to spend a bit more than $65,000. $3,000,000,000,000 in tax revenue translates into the equivalent of 51 million jobs. But $3,000,000,000,000 in government spending translates into 46 million jobs. Net loss is 5 million jobs.

Now, it isn’t quite this simple or clean, as the relation between the taxing and the spending is delayed and tortuous. But the general relationship is this: government spends more money creating a job then does the private sector and government spending. Once government moves past a certain point in providing security, infrastructure and governance – which occurs consumes less then 10% of the entire Gross Domestic Product - it stops adding to the solution, and starts adding to the problem.

Moreover, when government creates a job, there is no reason to believe they got it right; government often overpays, and the job may be of no value. It is no coincidence that real estate costs in the Washington DC area are some of the highest in the country. While the federal government does not pay very well at the very top end (that comes after folks leave government), it pays ‘middle management’ very well, as witnessed by the number of SES and GS-15s in the Washington area.