Small Matters: Grow the population, grow the jobs

Posted: January 02, 2012

In the long haul, job growth depends on population growth. A population that does not grow will not experience rising employment.

Once a country establishes its laws (such as child-labor laws - no one under 16 can legally work and produce gross domestic product), taxes, regulations, and cultural restrictions, the maximum level of employment is determined. Only if there are more people can a country create more jobs.

In the short run, however, all countries can experience cyclical unemployment. And that is the problem we have here in the United States.

Arguably, employment became unsustainably high in the 2003-07 bubble period as everyone borrowed money (which cannot go on forever, as we saw) to support spending "beyond our means." This, in turn, drove employment up to unsustainable levels.

When consumers and governments hit the wall on borrowing, employment began to fall. As is typical in cycles, it has fallen too far and will recover to more normalized levels as time passes.

Over the last 15 months, the Census Bureau reported that our population increased 2.8 million people - a lot of people, but the lowest percentage gain since the 1940s. These are people who buy food, clothes, and cars, rent or buy houses, eat at restaurants, and go to clinics - if there are firms to deliver these goods and services. To take care of them, firms are born and jobs are created. This is why two-thirds of the jobs created are at small firms.

The fastest-growing state was not even a state. It was Washington, D.C., which was up 2.7 percent. Texas, Utah, Alaska, Colorado, and North Dakota were next. A lot of that population growth is related to the boom in energy and oil production.

Alas, New Jersey and Pennsylvania did not make the top 10. Only three states lost population, and we were not on that list.

Texas topped the list of real people added - a net gain of 529,000. California was second at 438,000, and Florida was third with 256,000. This is a lot of new demand that can, in the long run, support new job growth.

However, because so many companies were created in the "housing boom," a large number of new businesses may not be needed to serve that particular sector in the highest-growth states. With the possible exception of Texas, there is already a surplus of houses in those fast-growing locations.

Whether filling positions lost in the recession or stimulating the growth of new firms and companies, population growth is the key to job growth. New starts and terminations reversed positions in the second half of 2010.

Our current unemployment problem stems from a deficiency of demand, especially compared with where we were in 2006-07. The jobs lost were at existing firms, and these firms will be the primary source of reemployment for the majority of the displaced workers.

New firms will contribute some to the recovery in employment as well, and most of those will be started in parts of the country where population growth has been strong. In other areas, there is still a surplus of firms started before 2008 and competing for a shrinking or barely growing pool of consumers who are actually spending money, buying things. Therefore, the recovery in employment will be slow, as we are seeing.


Bill Dunkelberg is a professor of economics at Temple University and a nationally recognized expert on small business. Contact him at dunk@temple.edu.

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