HP, Microsoft prove it again: Big Business doesn''t create jobs

HP, Microsoft prove it again: Big Business doesn''t create jobs

 Worstall on Wednesday The recent news of layoffs from computing giants provides proof, once again, of an old economic saw. It is not actually big businesses that create jobs, it''s the small and new ones.

 
Our problem is that we''ve a political class (yes, all of it) that doesn''t really quite get this. They would like there to be lots of jobs, of course, but they think that the way to get them is to suck up to - to give privileges to - large extant employers instead of the people who actually do create jobs.
 
 
Microsoft is laying off 18,000 because they''re not sure what they should be doing (other than indulging in corporate doubletalk that is). HP is going to lay off even more people because, err, they don''t know what they should be doing either. And all of this really shouldn''t be a surprise to observers of the scene economic. We expect big business to continually be shrinking its workforce. Perhaps not with quite this sort of vehemence but over time it''s the standard assumption.
As background consider employment in the UK in a way that you''ve probably not done before now (even many economists fail to wrap their heads around this). There''re some 30 million people employed at any one time (as ever, numbers are not accurate, only indicative of the order of magnitude with perhaps the first digit also correct). We can also see that unemployment moves around a bit. Couple of million, four million, a shifting number over time and decades. We generally also think that unemployment rises when more firms go bust, when more people get fired. But this isn''t really true, that''s not what actually happens.
 
Each year the UK economy destroys some 3 million jobs. Yes, really, 10% of all jobs disappear each year. Some of this is bankruptcy of firms, some of it is technological advance (to the extent that the first isn''t caused by the second). Each year the UK economy also creates some 3 million jobs. The change in unemployment is the balance between those destroyed and created numbers and what happens in recessions isn''t that, particularly, more people get fired or more companies go bankrupt. It''s that many fewer new firms start up, many fewer small ones expand. And it''s that which produces the imbalance that leads to higher unemployment rolls. Not a greater destruction of extant jobs, but an absence of job creation.
 

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