The term “job creator” is often mentioned as a title of nobility. We are led to believe that companies create jobs out of a sense of civic duty or out of a benevolent desire to see the population employed. However, the professional economist and the seasoned business strategist know a different truth.
Companies don’t create jobs to be nice.
They don’t create jobs because they have extra money in a safe deposit box. In fact, for a company, a “job” is an expense that must be justified by an even higher return. To understand the main reason why companies create jobs, we must eliminate the layers of corporate altruism to find the cold and beating heart of the company: the search for evolutionary value.
The mathematics of marginal utility.
In its simplest form, an enterprise creates a job due to a fundamental mathematical inequality: the value of production is greater than the cost of the enterprise.
Imagine a craftsman making leather boots.
It can produce two pairs per day. He sells them for $200 each, which earns him $400. After deducting the costs of raw materials, its net profit amounts to $300. He is working at full capacity. If he wants to make $600, he can’t just work harder; he’s limited by time. To increase his production, he needs to hire an assistant.
The assistant costs $150 per day.
If this assistant allows the workshop to produce four pairs of boots instead of two, the turnover increases to $800. After paying for the assistant and additional raw materials, the owner’s profit increased. The job was created not to help the assistant pay his rent, but because the assistant allows him to exceed his own physical limits.
This is the marginal productivity of labor.
A company hires a new person when it believes that his arrival will generate more income (or allow more savings) than the required salary and benefits. When the cost of an employee exceeds the added value that he brings, the position is eliminated.
The complexity trap and the theory of the firm.
In 1937, the economist Ronald Coase published a revolutionary article entitled “The Nature of the firm”. He asked a simple question: if markets are so efficient, why do companies exist? Why not work on your own and outsource each task?
The answer lies in the transaction costs.
Finding, negotiating and hiring a new person every time you need to have a letter written or scanned is a tedious, expensive and time-consuming task.
Companies create jobs to internalize these costs.
As a company grows, it encounters the “complexity trap”. A software company founder finds that he spends 80% of his time on payroll, legal compliance and administrative management, and only 20% on development. For him, the “value” of his time is then extremely high. By creating a position in human resources or accounting, the company does not necessarily create a role that directly generates income, but rather a role that preserves the productivity of its most valuable assets.
The raison d’être of this position therefore lies in the specialization.
By creating a position for a specialist, the company increases the overall efficiency of its organization. The purpose of this position is to streamline the processes.
Respond to the signal of the request.
If internal efficiency is an important factor, the most powerful external force remains the demand signal. Companies are essentially intermediaries between the resources and the desires of consumers. If the world suddenly decides that it needs electric vehicles, Tesla and Ford do not hire engineers simply because of a whim; they hire because the signal of market demand is crying out: they are demanding a product that they cannot manufacture with their current workforce.
Employment is an indirect indicator of consumer confidence.
When people spend, companies feel the pressure of unmet demand. If a restaurant is full every night and frustrated customers leave, this queue represents a shortfall. To compensate for this shortfall, the owner must hire more waiters and cooks.
The main reason why a company creates a job is the customer’s request.
The enterprise is only the mechanism that mobilizes labor to satisfy demand. If the consumer stops buying, the raison of the job disappears, regardless of the profits of the company.
Competitive advantage and innovation.
Job creation responds to another, more offensive reason: competitive advantage. In sectors such as Silicon Valley, pharmaceutical research or aerospace, companies often recruit “surplus” talent. They create jobs for the brightest minds, not only to meet current demand, but also to ensure a sustainable competitive advantage. This is called “Research and Development” recruitment.
When Google hires a thousand AI researchers, the company is not looking for an immediate return on investment.
It creates jobs to build an intellectual bulwark. It invests in the “flexibility” of the future. The reason for these jobs is competitive dominance. If a company doesn’t hire the best talent to innovate, its competitors will. In this highly competitive context, a job is a defensive investment. Immobility is synonymous with decline, and progress requires the fuel of human intelligence.
The systemic cycle.
Beyond the internal logic of the company, external systemic pressures force the creation of jobs.
Capital Needs: When venture capitalists or public markets inject funds into a company, it is in the hope of growth. The accumulation of liquidity on the balance sheet is often perceived as a form of inertia. Investors incentivize CEOs to invest these funds, which almost always results in hires. In this case, the job is created to satisfy the growth requirements of the shareholders.
Regulatory burden: Sometimes the state creates jobs indirectly. Changes in tax legislation, environmental regulations or health obligations force companies to create compliance-related positions. These jobs do not have a direct impact on financial results, but they make it possible to avoid the negative consequences of fines and legal proceedings.
The human element.
Although we tend to perceive companies as cold and calculating machines, they are run by human beings. Sometimes job creation is motivated by a vision and ambition.
A CEO may wish to run a “big company”.
Greatness is often measured by the extent of his empire. There is a psychological drive to develop, to build a culture and to leave a mark. Steve Jobs didn’t create Apple just to balance his books; he created it to “make history”. This brand required the contribution of thousands of people.
The concept of organizational inertia.
Once a company reaches a certain size, it acquires a dynamic of its own. It creates positions to manage those already in place. If this can lead to excessive bureaucracy, it is a real reason for job creation: the organization seeks to perpetuate its existence and its complexity.
The importance of the raison.
Understanding that companies create jobs to extract value rather than through philanthropy is not a cynical vision, but a liberating one. This sheds light on the relationship between employer and employee. If a job is created to solve a problem or generate profits, the employee’s safety is based on his ability to continue to provide solutions to this problem. The “raison” of employment is the “value” it brings. When employees understand the economic engine of their company, they can align themselves with the activities that make them indispensable. The company provides the infrastructure, the brand and the capital. The employee provides the work, ingenuity and time. Employment is the meeting point of these two interests.
Conclusion.
The main reason why companies create jobs is to bridge the gap between their current capabilities and their potential profits. Whether it’s a small bakery hiring its first delivery person or an international conglomerate hiring ten thousand data scientists, the underlying logic is the same: there is a surplus of value in the world that can only be released by human effort. The “invisible engine” of the labor market is the unmet need. As long as human beings have unfulfilled desires and entrepreneurs see the possibility of making a profit by fulfilling them, jobs will be created. It is a virtuous cycle: demand creates opportunity; opportunity creates enterprise; enterprise creates employment; and employment, by ensuring an income for the worker, creates new demand. Companies don’t create jobs to save the world. They create jobs to build the world, brick by brick, by providing cost-effective, specialized and value-creating solutions. In the end, the “reason” is growth. A company that does not create jobs is a company that has given up dreaming of a better future. And in the business world, stopping dreaming is the first step towards disappearing.
