Do Entrepreneurs Really Create Jobs?

Barry Ritholtz has an iconoclastic take on entrepreneurs and job creation:

BI is a digital media property. The print industry (aka dead trees) has been fighting a losing battle versus online competition for years. The print news industry itself is shrinking, while the online industry is growing — but online’s gains are not nearly as large as offline’s losses.

Those 75 jobs Henry mentioned? Twenty-five years ago, they would have been 250 jobs at various newspapers and magazines. Writers, copy editors, artists, printers (Humans, not HPs), etc. The enormous gains in productivity allow far fewer people to do the work formerly employing far more people. This is the inevitable path of technology. Ever since the first human sharpened a stick to hunt, that curve has been the accomplishment of more production with fewer people.

What entrepreneurs actually do is facilitate moving workers from one firm to another — from the less productive business model to the more productive one — as they battle it out in the marketplace.

Economonitor: On Job Creation, Creative Destruction and Technology

(Note: It sounds from Ritholtz’s piece that Blodget is claiming that BI created jobs, but Blodget actually does not claim this. The original piece is here)

I do think that in some cases entrepreneurs create economic opportunity where none existed before – this would especially seem to be the case in the “shadow economy” that thrives in squatter settlements all over the world. But many enterprises now are in the business of destroying jobs through technology. Many more jobs now exist for computer programmers. I benefit from the IT revolution as a journalist in that I rather doubt there would be nearly as many people employed as technology journalists otherwise. But the companies that employ these people, the companies that I cover, are upending entire industries, such as legal services and travel agencies.

In the past we could assume the luddite fallacy was indeed a fallacy. However, reading Race Against the Machine or Slate’s Robot Invasion series it appears that concept may soon need to be renamed the luddite principle.

It doesn’t matter when you were born, we’re all a part of generation sell now. But are we about to turn a corner?

2 Comments

  1. I am still unclear how/why technology could be destroying jobs now, but in the past technology created more jobs than it destroyed.

    For example, much of the American workforce used to be engaged in agricultural production. Now it’s down to 2% of the workforce. Those agricultural jobs weren’t lost forever.

    Could it be that we’ve reached a point where technology is changing so fast that humans can no longer keep up? Does this mean that we will witness prolonged under/unemployment?

    I’ll have to check out Race Against the Machine and Slate’s robot series.

  2. I think the problem today is that we are pushing people further up the value-adding chain and we’re witnessing the limits of some people to adapt. Not everyone can become engineering consultants or stockbrokers (even they are being outsourced by algorithmic traders). Those jobs which are not being automated are then outsourced as well – we’ve witnessed some outsourcing of engineering design projects as well as IT and other sectors like that.

    The main problem is always that technological unemployment causes demand destruction in many cases, although in the past it was so small that it was not noticed. If you’ve doubled your efficiency with automation and thrown out 90% of your manual labour workforce, you still have the rest of society to buy your products. If this automation occurs at the same time that other jobs are outsourced, and it occurs fast enough as the first poster mused, then we have the seeds for a sort of “demand shock” similar to the “supply shock” of the 1970s oil embargo. It is all quite interesting to see. Demand destruction at this scale might actually remove the basis for the gains in efficiency in the first place, since your break-even volume is higher with capital-intensive production. Will be interesting to see how this works out!

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