Blog: Where Jobs Come From

As many countries around the world struggle to grow their economies after the recent economic downturn, it is a good time to ask the question, “Where do jobs come from?” Or, asked in a different way, “Who creates jobs?” As is often the case, the answer depends on who you ask.

A common answer from politicians is that businesses create jobs, which is the reason to provide tax breaks to corporations, and at times to the wealthy people who own them. The thinking is that if businesses create jobs and we allow the owners to keep more of their income that they will, in turn, create more jobs. Even more jobs would be created if the owners started new businesses with their earnings, but this is not always the case.

Some say more specifically that it is small businesses that create jobs. When a person starts a company they hire someone, and then as the business grows, they hire additional employees. This is the job creation that comes from small businesses.

While it is certainly businesses that hire people, whether or not any jobs are created depends on who they hire to fill their positions. If they hire someone who is currently employed and that person’s old position is not filled, then no jobs are created. If a new company is formed by taking employees from a larger company and creating a new second company, then no new jobs are created that way either.

Despite being a business owner, I don’t agree that jobs are created by businesses. Jobs are created by customers. The only reason that a company should open is if there are customers who have a demand that is not being met, whether it is a new product, a level of quality, or features missing in existing products. The unmet demand may also be that there is simply not enough of the product or service available to meet the demand. When a company is created to fill this previously unmet demand, that new company will create new jobs. Similarly, if a company is faced with greater demand than they can supply, they will need to increase production, which usually requires hiring more people, thus creating new jobs.

Because it is customers who buy products and services, it is customers who create jobs. So, if you own a business and want to grow and hire more people, you first need to start by either convincing your current customers that they need to buy more, or you need to find new customers. By focusing on finding new customers and meeting customer demand rather than jobs, jobs will be created and the economy will grow.

Please leave a comment about how you think jobs are created; I would like to hear your thoughts.

Brian Hock, CMA, CIA

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