It is impossible to understand job creation without understanding value creation and labor/overhead costs. People hire other people when their labor creates more value than it costs to hire them.When labor costs are high, the value created must also be high; it makes no sense to hire someone if doing so generates a loss.When labor is cheap, the bar of value creation is lowered, and so the risk of hiring a worker is also lower: they don't have to add much value to be worth their wage.This is why you see many low-value jobs in developing-world countries. There are night watchmen on duty in virtually every parking lot and building in urban Thailand, for example; these workers are providing a fundamental value, "eyes on the street," but it is a low-value proposition: no special skill is required other than being a light sleeper. The cost of their labor is equivalently low, but in a low-cost basis economy such as Thailand's, a very low wage is still a living wage. In a self-employment example, many vendors in urban Thailand set up their informal food stall (a cart or a tent) for a few hours a day. Their net income is low, because what they provide--readymade food and snacks--is available in abundance, i.e. there are many competitors.Nonetheless, because the cost basis of life is relatively low, modest earnings from a low cost, low-profit enterprise make the enterprise worthwhile. Compare that with the typical government job in the U.S. or Europe. It is difficult to measure the true cost of government pension costs, as local governments do their best to mask their pension costs and inflate their pension funds' projected returns. But a back-of-the-envelope calculation yields about a 100% direct labor overhead cost for the typical government job with full healthcare, pension and vacation benefits. So an employee earning $50,000 a year costs $100,000 in total compensation expenses.
I've never considered a Govt a real job, simply because jobs by their very nature return something to the mkt.Govt jobs are a net loss, they only take, they return nothing of real value.
As a result, it is now impossible for many local municipalities to fill potholes: it makes no sense to have $100,000/year employees performing low-value work like filling potholes. Put another way, there is a labor shortage in high-overhead government bureaucracies because after paying for legacy pension costs, there is no money left to hire more people at $100,000 a year in total compensation to fill potholes, a job that might be worth $35,000 in total compensation. The value created by government employees filling potholes is completely out of alignment with the cost of their wages/benefits. If employees cost $100,000 (recall that their annual earnings may be $50,000--we must always use total compensation, not wages as reflected on pay stubs), then in effect all work that generates less than $100,000 in value can no longer be done. This is why cities and infrastructure are falling apart. Once you raise the cost of compensation far above the value being created by the labor, then most lower-value but nonetheless essential work (e.g. filling potholes) becomes unaffordable to accomplish.
That was an interesting article.So much economic logic in such a tight space!I particularly liked this part:This explains a lot.