March 04, 2012
The link between job growth and economic growth is one of the most solid relationships that you will find in economics. The reason is that it is almost definitional.
If we hold the length of the average work year constant (it doesn’t change quickly — although perhaps it should), then the rate of economic growth is equal to the rate of productivity growth plus the rate of job growth. (Yes, there is a multiplicative element here for serious nerds, but it doesn’t matter for what we are talking about.) This means that if the economy grows more rapidly, then we will see more rapid job growth, unless productivity just surges for some reason.
Faster productivity growth is in general good news. This means that we are getting richer, producing more in each hour of work. We can adjust to this either by further boosting demand or by shortening workweeks or providing longer vacations.
However as a practical matter, we don’t just see booms in productivity growth. There are erratic movements in productivity around business cycles, however periods of greater than trend productivity growth are inevitably offset by slower than trend productivity growth, as for example happened when productivity surged in 2009 only to be followed by slower growth in 2010 and 2011.
In short, the link between economic growth and job growth is rock solid. That means the Walter Kiechel was spewing nonsense in the Washington Post when he criticized Governor Romney’s plan to create jobs by getting the economy going:
“Savvy consultants also know that the data indicate a sneakier problem with ‘just get the economy going again’ as an answer to unemployment. As you can read, for example, in a 100-page report from the McKinsey Global Institute, the link between economic recovery and job creation in the United States has been growing weaker for at least the past 20 years. While employment was harder hit in the most recent recession, the recoveries after the 1990 and 2001 downturns also featured slower rates of job growth than the historical norm. As the report states, ‘In the years from 2000 to 2007, the United States recorded its weakest employment growth for any comparable period since the Great Depression.’ And that was during a Republican administration, one hell-bent on reducing unnecessary regulation and further kneecapping unions.”
There is good reason to question whether Governor Romney’s tax cutting and business friendly regulation strategy will lead to strong economic growth. But if it did, there is little doubt that it would create jobs.
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