How Jobs Are Created in the USA

This is cross-posted from my blog, Green Lifestyle Consulting,  where we have started a discussion list for green bloggers to contribute political posts. I am interested in what the readers of Blue Mass Group think about this article.

I am concerned because I believe that many people are being mislead about how jobs are created.

A few weeks ago I talked with my neighbor who is a job creator.  He is a venture capitalist who looks for medium sized companies that are not meeting their potential or needs an investment of capital. Then he invests and his company provides management assistance and his goal is to turn them into multi-million dollar companies.  We talked about how jobs are created by government, and while his preference was for them to do what he does, this post was the result of our conversation.

If you have a small or medium sized business, and your taxes go down, are you going to hire more people?

Say, you’re a hairdresser, own an independent store or you’re a private lawyer. If you have slightly lower taxes, then your personal income may go up slightly. Hopefully, you’ll save some of that money for a rainy day, but are you going to hire another employee?   Now imagine that your neighbors: teachers, construction workers, and firefighters are re-employed and working again. Now that they have jobs again, they are going to be spending more in the economy.

They’re going to come into your store, your hairdressing shop, or maybe decide to finally get their Will written. Now you have more business. Will you consider hiring someone now? If the increase in business is enough, then you’ll consider hiring more help. If the increase in business is enough, are you going to NOT hire someone because of your tax rate? or the overhead requirements? If business is good enough, you will hire that person regardless of other expenses because it makes you more money and provides more service to your customers.

Now, if you’re rich, and your taxes go down slightly, you will likely buy more stock and other investments. When you buy stock, you expect those businesses to increase in value. To do that they frequently cut expenses, often by laying off workers and moving jobs overseas. Not all of the big businesses, but many, especially in recession years, reduce their staffing sizes. Now there are more unemployed workers who are not earning income, paying taxes or buying goods and services in their local economy.

The other time you will buy stock, regardless of the taxes, is when businesses are doing well. When do businesses do well? When people buy things and services, particularly luxuries. I don’t know about you, but I’m a lot more likely to buy luxuries when my income is reliable and I’m not worried about losing my job in budget cut backs.

If you make $40,000 a year and you make an extra $5,000 that year, either because you’re a plumber and got more work, or because you received a tax break, odds are pretty good that there is something that you need that you will spend that $5,000 on. If you make $700,000/year and you have an extra $50,000 because of a tax break or extra income, are you definitely going to buy something tangible with that money? Maybe, but maybe not.

 

So how do teachers, firefighters and construction workers get more jobs? By the government investing in people and hiring them. How does this work? The federal and state governments provide grants to local municipalities designated for only hiring teachers or firefighters, or in the case I am personally familiar with, investing in infrastructure. I work for a City. We sometimes get grants for energy efficiency work. When that happens I hire consultants, engineers and contractors. In one case, we bought hot water heaters (made in the USA) and piping and we installed a more efficient hot water system in a school. In another, along with hiring consultants, engineers and contractors we are buying boilers and parts for a heating system. We will convert the building from oil to natural gas and reduce our dependency on foreign oil, reduce our greenhouse gas emissions and save taxpayer money.

But what about government deficit? Are you familiar with the phrase “you have to spend money to make money?” If these people are employed, they will earn a living and pay income taxes, social security taxes and medicare taxes. They will also purchase services and products feeding that money back into the economy, which leads to other people earning income, paying taxes, etc.  Boom! More income for the government and more jobs for the citizens.

Just to be clear, the method that I am describing for creating jobs is what President Obama has been trying to do for years with his jobs bills, but the Republicans REFUSE to pass it. They won’t even negotiate. Can President Obama spend money without their approval? Not much, and not without excellent cause. He has made some headway in spite of the Republicans’ refusal to work with him, but with cooperation and a willingness to try, we could do so much more.

This is why my family is not only voting for President Obama, and in Massachusetts for Elizabeth Warren. This is why I have been actively working on Elizabeth Warren’s campaign instead of writing green living items here on the blog. I believe that President Obama knows how to create jobs, and with a cooperative Congress, he could make a huge difference in this country. I cannot comprehend how Romney’s plan to reduce taxes will create jobs or help the US deficit.

Happy Greening and regardless what you believe, remember to VOTE!

Alicia