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How much does it cost to create a single job in the UK?

Money by Lee J Hayward via FlickrUnderstanding the economy in basic terms

I am just a lowly psychologist and I don’t have any formal economics education. So, I look out for rules-of-thumb that I can remember. And I also try to remember what it ‘felt’ like when the economy was in a particular state. Knowing what a 3% downturn feels like and what a 7% downturn feels like helped me anticipate what a 5-6% downturn in UK would feel like.

I am puzzled though, that in an economy as advanced as UK, the middle classes aren’t more economically literate.

We hear a lot, for example, of how the government will save 3000 pounds or so in Benefits by packing people off to a job. These statements alone make me cock my head in puzzlement. We are in very deep recession. People are on Benefits because they have lost their job.

What is even more puzzling is that people who claim to know, don’t know what it costs to create a job. Where I have lived before, people knew these numbers.  They had them at their fingertips.

Using US investments to estimate the cost of a job

Let’s record some figures  to show you what I mean.

Obama has just announced a USD2bn subsidy to two solar powered firms. One will create 1500 jobs and the other 1600 permanent jobs and 400 temporary jobs.

Let’s keep this simple because we are talking rules-of-thumb.

3000 into 2bn makes 66 000 660 000 . And that is just the Federal subsidy.

Putting that into British money, 660K is more than 500K pounds, but lets keep it simple. Now we have taken a powerful vacuum cleaner to our economy, we will need 500K to make a job (and this is probably an entry level, repetitive job).

500K is 16 to 17 years of benefits. Governments use benefits to bail out an economy precisely because it is cheaper than making jobs.  Jobs cost money and we should know how much.  These numbers should be at our finger-tips.

Where can we make jobs?

And of course, we can’t make jobs if we don’t even know which industries are viable. I suspect this is the greater problem. Our leaders don’t know enough about what will be the future of our economy so they don’t know where to invest.

But let’s not get off the point. For the moment, until I get better numbers, I’ll use a rule-of-thumb as GBP500K  of investment to create one job.

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7 Comments

  1. Evelyn Evelyn

    Some jobs cost 50k to create, but the jobs they are trying to get the millions of unemployed in won’t cost anywhere near that — they need to get them doing the menial jobs that currently no-one takes, such as working as nursing assistants, porters, shelf-stackers etc. No-one wants those jobs because the dole pays much more! Those jobs cost very little to generate — they already exist, but only foreigners who cannot claim the dole find them profitable enough to take.

    And there are millions of malingers claiming to be too sick to work and so getting extra money and so on and so forth. All this also takes away resources from the actual sick people.

    The UK has the longest dole queue in the world — currently even people earning up to £50k can claim some sort of ‘tax credit’ (aka benefit).

    The argument that paying benefits is cheaper than creating workplaces is also a bit problematic — who pays? Normally the investor shells out and hopes to recoup with profits and then the govt. cashes in on taxes. In the case of the solar company, no-one wanted to invest and so the govt had to subsidize the enterprise, and in that case, yes, investing in companies or paying out benefits makes paying benefits cheaper, which says a lot about the crazy idea of subsidizing any business 😉

    But the main problem is all the taxes that put about 50% cost on everything, if not more — people just cannot afford to hire each other, and so the entire idea of ‘labour exchange’ has gone out of the window, Folks DIY nowadays (or just put up with broken stuff) and we’re back to subsistence behaviour where inefficient people try to bodge the job the best they can, instead of doing what they do best and hire someone with the money earnt, with everyone profiting from the exchange.

    Mind you, the fact that property and rents is sky high is as bad as high taxes, which is why benefits for families that need a house often are far higher than the median wage, some families have been claiming up to £2k a week in rent! (most will claim about £1k, but that is still more than the minimum wage take home pay for a single person). Normal people simply cannot survive in the UK without claiming *some* benefit.

    To put it short: money matters in the UK are totally crazy!

  2. Evelyn Evelyn

    Oops, correction: claim 1k per month in housing benefit on avg., not 1k per week. But yes, 2k per week is happening too(£104k a year), but it’ being stopped now and those people must now move.

  3. Don’t you notice something, Evelyn, about England? We spend most of our energy talking about what we can do nothing about (we say so ourselves). If we think the situation can change, we are more interested in the situation that can’t be changed by us; maybe by someone else, not by us?

    Isn’t it true that we just love being marooned unable to do anything?

    It does cost money to create jobs. After all a job that needn’t have been done at all is just benefits with heavy lifting and commuting.

    Our starting point has to be what we want to do and what it will take to get sufficiently skilled to do it. What do you want to do? More than anything else in the world?

  4. eggnostriva eggnostriva

    The untold truth is, that in a capitalist economy we need to keep around 1.5 million people unemployed. Much lower than that and we get wage inflation (no good thing). Job centres in the Uk are there to service these people and for little else. No politician is going to admit this as it would mean electoral suicide. But for every new government, Like our glourious coalition, to stand up and proclaim that it will get people off benefits and back into work is a joke. They need to be seen to be doing something, But full employment is a myth. This applies equally to the USA.

  5. Absolute, eggnostriva. Why don’t more people know this?

    Of course, right now we have higher unemployment and not great employment. That’s why I try to track ‘new jobs’ and get an amateurish rule-of-thumb of the capital value that supports a job.

    Thanks for the comment. Most relevant and important.

  6. Liang1a Liang1a

    Actually, $2,000,000,000 divided by 3,000 equals $666,666 and not $66,000.

    • It does indeed! I thought that was a bit cheap. Thanks – I’ve corrected the post!!

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