Friday, May 12, 2006

U.S. Auto-Makers' Employment

Totally cross-posted from WombatEcon:

In the Soviet Union, there were frequent problems with production for its own sake, and the problem was often made worse because it was hard to monitor the managers in every industry -- the old joke is that an order for 1000 pounds of nails was just as likely to result in one 1000-pound nail as it was to result in 1000 pounds of "normal-sized" nails.

But getting back on topic:

Saying that the Detroit auto builders employ more workers per car built is just another way of saying they're less efficient. It's hard to believe that anyone thinks this should be a badge of honor.

There's an old story about an economist visiting the Soviet Union in the 60s. He is taken on a tour of a new dam project East of Moscow, and he observes that the workers are using shovels to prepare a foundation while various bulldozers and earth-movers sit idly by. "Why are the workers using shovels instead of heavy equipment?" he asked.

"Well, we can employ many more workers if they dig by hand," responded his tourguide.

To which the economist said: "Well, if the goal is to employ as many workers as possible, why not dig with teaspoons instead of shovels?"

A healthy business, industry, or even economy, does not function to provide employment. Employment is a side effect of a healthy, growing economy. The purpose of an economy is to produce goods and services that consumers will want to buy. One service provided is labor. But labor is only valuable when it is willingly bought by those who demand it. Employment for its own sake makes no more sense than production for its own sake (think of the 1000 pound nail).

Update: Russ Roberts of Cafe Hayek has an interesting take on this job creation nonsense.