Where New Jobs Don't Come From

by dicenews Mar 10, 2010 2 min read

In times of high unemployment rates, it's logical to ask one simple question: Where do new jobs come from? The deep thinkers at McKinsey may not know for sure, but they do think they know where new jobs don't come from, and a myth-busting article from the McKinsey Quarterly (free registration required to access full content) lays out their counter-intuitive thinking.

Surely there's a quick fix. Nope. McKinsey says, "The country would need to create more than 200,000 net new jobs each month for the next seven years to get unemployment back to what was once considered a normal five percent."
The key to boosting employment quickly is to help small businesses. Nope. McKinsey says, "New jobs come from both small and big businesses. From 1987 through 2005, nearly a third of net new jobs were created by businesses that each employed more than 500 workers. By 2005, these big companies accounted for about half of the country's total employment, although they made up less than 1 percent of all US firms."
High-tech jobs will solve the problem. Nope. McKinsey says, "We'll be able to generate significant numbers of new jobs only by spurring broad-based job growth across the economy, particularly in big sectors such as retail, wholesale, business services, and health care. High-tech innovations will help employment grow over the long term, as new technology spreads throughout the economy and transforms other, larger sectors."
Higher productivity (when an economy produces more goods and services per worker) kills jobs. Nope. McKinsey says, "While productivity growth means that individual companies may need fewer employees in the short term, it spurs long-term gains in the economy as a whole. Since the industrial revolution, increasing worker productivity has brought rising incomes, higher profits, and lower prices. These forces stimulate demand for consumer goods and services and for new plants and equipment --fostering, in turn, industry expansion and job creation."
Increasing exports will revive manufacturing employment. Nope. McKinsey says, "Maybe for some companies in some industries, but not for the economy overall. While it's painful to accept, reducing unemployment is not mainly about regaining the jobs that have been lost. Sure, rising exports will cause some factories to scale up again, and many laid-off workers will be called back. But most new job growth will come from other sectors.

Take these facts and figures to the water cooler, and kick start a conversation.

--Don Willmott

Surely there's a quick fix. Nope. McKinsey says, "The country would need to create more than 200,000 net new jobs each month for the next seven years to get unemployment back to what was once considered a normal five percent."
The key to boosting employment quickly is to help small businesses. Nope. McKinsey says, "New jobs come from both small and big businesses. From 1987 through 2005, nearly a third of net new jobs were created by businesses that each employed more than 500 workers. By 2005, these big companies accounted for about half of the country's total employment, although they made up less than 1 percent of all US firms."
High-tech jobs will solve the problem. Nope. McKinsey says, "We'll be able to generate significant numbers of new jobs only by spurring broad-based job growth across the economy, particularly in big sectors such as retail, wholesale, business services, and health care. High-tech innovations will help employment grow over the long term, as new technology spreads throughout the economy and transforms other, larger sectors."
Higher productivity (when an economy produces more goods and services per worker) kills jobs. Nope. McKinsey says, "While productivity growth means that individual companies may need fewer employees in the short term, it spurs long-term gains in the economy as a whole. Since the industrial revolution, increasing worker productivity has brought rising incomes, higher profits, and lower prices. These forces stimulate demand for consumer goods and services and for new plants and equipment --fostering, in turn, industry expansion and job creation."
Increasing exports will revive manufacturing employment. Nope. McKinsey says, "Maybe for some companies in some industries, but not for the economy overall. While it's painful to accept, reducing unemployment is not mainly about regaining the jobs that have been lost. Sure, rising exports will cause some factories to scale up again, and many laid-off workers will be called back. But most new job growth will come from other sectors.

Take these facts and figures to the water cooler, and kick start a conversation.

--Don Willmott

Where New Jobs Don't Come From

Where New Jobs Don't Come From

Dice Staff