How Important is Job Creation, Really?

How Important is Job Creation, Really?

By Erica Dombey, President, Executive Director, Regional Development Company (RDC)

Jobs, jobs, jobs. That has been the focus of the country for the past five years. Municipalities tout their creation. Politicians promise to create more of them. Incentives for businesses depend on them. But how important is job creation, really?

Let’s look at some numbers from the Indiana Department of Workforce Development. In October 2019, there were 101,383 unemployment claims in the state of Indiana. In November 2019 there were 134,117 job openings in the state. The labor force in Indiana (those working or who want to work) is predicted to grow by just 34,000 people from 2020 through 2030. Baby boomers are retiring at a rate of 10,000 per day, nationally. And 2018 saw the lowest birth rate in US history.

These statistics are typically presented separately, but when laid side-by-side, they tell a story we might otherwise miss. Plenty of jobs are being created, but who will fill those open positions? The state of Indiana already has more job openings than people seeking employment. While the Great Recession of 2007-2009 saw many jobs replaced with automation, ten years later the country still sits at what is considered by experts as “full employment.” Quality of place improvements may draw new people and additional workforce to the state, but this is a nationwide problem. Workers moving to Indiana will create open positions elsewhere in their absence.

Job creation creates payroll, which creates tax revenue for the state, so it is understandable that states want to see job growth. However, there are other ways to pad the municipal coffers that are more in-line with the population trends of the country. One of the simplest ways is to encourage and incentivize capital expenditures.

When businesses invest money into plants and equipment, they are taxed based on the value of that real estate and personal property. The purchase, improvement, or construction of commercial real estate increases the value of that property and increases the real estate tax garnered from it. In fact, because of Indiana’s real estate tax caps, the only way to significantly increase business real estate tax collections are through the improvement (and higher assessment) of commercial real estate. Likewise, when a company purchases other assets such as equipment or software, it pays new personal property tax on the value of those items.

Capital expenditures increase productivity and efficiency. In the past, these expenditures have created new jobs. Due to increased technology, these expenditures are now more likely to increase wages, as the workforce is required to be more highly skilled and trained. This increased operational efficiency also creates higher profits for the company and higher gross domestic product (GDP) for the country. How important are business’ capital expenditures to the overall economy? Well, according to the Bureau of Economic Analysis, these expenditures accounted for 1% of the 2.9% GDP increase in 2018.

Lower- and mid- paid jobs are increasingly being replaced by automation; in fact, The McKinsey Global Institute estimates that up to 40% of today’s jobs could be replaced by automation by the year 2030. These jobs are being replaced by fewer, but higher paying jobs. Training and retraining the workforce to fill these higher-tech jobs is an important part of the equation, which is being addressed by the state of Indiana’s Next Level Jobs program.

On its own, job creation is not enough to grow the economy. Focus must shift from quantity to quality- the creation of high paying, skilled positions. The tax base will also shift to rely more heavily on real estate and personal property taxes. Investment in these areas is an investment into the communities where these businesses are located.

Job creation is, and will always be, important. However, population trends are changing. Technology is changing the number and type of jobs available. It’s time economic development efforts change along with them.

Category Features, Last Word