In the aftermath of a recession, there is a rise in the number of jobs that are created. This is important for any local economy. There are two main components of the economy that are affected: the businesses and the consumers.
On the consumer side, the net effect of the creation of jobs is an increase in consumer spending and consumption. When jobs are created, more people become employed. More people are making money and therefore there will be an increase in consumer spending on goods and/or services in the market because consumers will not save as much as they used to. There have been benefit cost studies that have shown that over 70% of the benefits of job creation are the resulting increase in earnings because with more earnings usually comes more consumption. This increase in spending causes an increase in demand for goods and/or services.
On the business side, the effects of the creation of jobs are an increase in productivity of the business and the eventual growth of the business. When a business creates more jobs, it is able to hire more employees. An increase in the number of employees means that the business is able to produce more goods and/or services for the consumer. This increases the business’s revenue and the available capital which creates a pathway for expansion, growth, and the ability to hire more employees.
Both sides of the economy are correlated with an increase in the overall Gross Domestic Product (GDP) of the economy. GDP is the value of all finished goods and services produced within a country’s borders during a specific time period. The equation for GDP is made up of various components, the largest being consumption. Consumption makes up 70% of the United States’ GDP, thus by increasing the number of jobs and subsequently consumption, the GDP will increase as well. Productivity and GDP are strongly, positively correlated (0.82 correlation), so an increase in business productivity can also lead to an increase in GDP as well because more goods and services get produced.
There are also other benefits to the local economy when jobs are created. The first is a larger tax base. When more people are working, this means that there will be more paychecks. This in turn suggests that there will be a larger pool of tax revenue since there are more paychecks to tax. This increase in tax revenue can be used to fix infrastructure and fund public goods, two services that improve the lives of civilians. The second benefit is lower welfare costs. If a society has a smaller proportion of people who are unemployed then the government has to use a smaller percentage of its tax dollars to fund unemployment benefits, food assistance, etc. This money can then be used to fund other government services.
The creation of jobs is necessary for any local economy. Without employment, a society can become unproductive and inefficient.