A New Way to Measure Prosperity: Counting Jobs Destroyed

Everyone is focused on how many jobs America creates.

Every month, we wait breathlessly for the U.S. and state labor bureaus to release the latest data on the economy’s employment status. An army of statisticians labors to analyze every facet: how many new jobs were created, the rate of unemployment, participation of workers in the labor force, the average duration of unemployment, the number of hours worked, and the average hourly earnings. The information is then recalculated by a variety of factors, such as age, minority status, and education levels.

The country expends this effort because we all agree that higher levels of employment and lower levels of unemployment are desirable. The assumption is that “full” employment is a requirement in order to generate prosperity.

I agree that employment is an important indicator of the country’s prosperity, but is it the only or the best unit of measure? I suggest we study another indicator: how many jobs are destroyed.

Before you think I am off my medication, let me explain.

In 1942, Joseph Schumpeter, an Austrian economist, popularized the idea that capitalism was based on “… the perennial gale of creative destruction.” That is to say, the free market is constantly churning, because entrepreneurs keep introducing innovations that disrupt, and in many cases destroy, established businesses and their jobs. Society accepts this disruptive process of transformation only because the residents, over time, see the benefits of greater productivity, which leads to higher living standards, new and better goods and services, shorter work weeks, and jobs demanding less physical labor.

The paradox of this creative destruction is that there is no gain without pain. Some individuals are worse off from the forces of change, and not just in the short run. So are corporations. Only five of today’s 100 largest companies were in the same category a century ago. Since 1970, barely half of the top 100 companies are still in the top tier.

What happens to all the labor that is disrupted? The country recycles its labor force from declining economic sectors into those that are expanding. The telecommunications sector is but one example. Remember Lily Tomlin playing Ernestine, the obnoxious telephone operator, on Rowan & Martin’s “Laugh-In” TV show? In 1970, the telecom industry employed 421,000 switchboard operators at a time when Americans made fewer than 10 billion long-distance calls annually. Today, there are 156,000 operators who handle more than 100 billion calls. Technology now allows each operator to handle 1,861 calls per day versus 64 back in 1970. That means more “ringy-dingys” per operator per day and lower costs for consumers.

Think farming. In 1800, it took 90 percent of Americans living on farms to feed a population of 3 million. By 1900, when the country had 90 million people, 40 percent of the population lived on farms. Today, about 2 percent of the population lives on farms and not only feeds 310 million people, but also exports foodstuffs to the rest of the world.

What happened to the switchboard operators and the farmers? What happened to the country’s 238,000 blacksmiths employed in 1910, the 109,000 carriage and harness-makers in 1900, or the 75,000 telegraph operators in 1920? They found work in new industries as electricians, auto mechanics, airline pilots, medical technicians, truck or bus drivers, appliance salespeople, software developers, and webmasters.

Thus, I propose that the U.S. Department of Labor create the “Bureau of Destroyed Jobs,” an office that tracks job destruction as a way of measuring the country’s prosperity. The purpose is to take a long-term view of our prosperity by measuring job and industry churn. This would help to remind the country that our short-term government policies designed to insulate corporations and their workers from change almost always backfire. Instead of allowing inefficient producers to go out of business, government steps in too often to protect them, thus delaying the shift of resources to more productive sectors and adding costs to consumers and, oftentimes, taxpayers.

Government wants the gain without the pain. The irony is that societies that think they can reap the gain of creative destruction without the pain end up experiencing the pain without the gain. Think Jimmy Carter, who thought government could tax its way to prosperity. What we reaped were rising unemployment and inflation, stagnant markets, and high energy prices. Think President Obama, who also wants government to tax and spend us into prosperity. The result is a sluggish economy, workers abandoning the labor force, astronomical debt and deficits, and crony capitalism. Can inflation be far behind?

Society both loves and hates its entrepreneurs. They bring us better things and create jobs. But they simultaneously disrupt the established order and kill jobs. We also can’t seem to accept their pursuit of self-interest — read profit motive — which ignites the progress that makes the rest of us better off. 

The country would prosper by establishing a policy where the majority of our taxes go to educating our students and retraining our workers to prepare the labor force to adapt to constant change rather than to spend it on trying to retard the impact of innovation by wrapping a protective net around its established corporations and citizens.

The Bureau of Destroyed Jobs would help us to recognize the good that comes from economic turmoil.       

Norman Poltenson is publisher of The Central New York Business Journal. Contact him at npoltenson@cnybj.com