Whether it is tax credits to small businesses or some other kind of special privilege that is being extended to them, the focus on “small” business in many economic circles, particularly with speaking of jobs, is huge. If you were to listen to President Obama, you might get the impression that it is only the small businesses that create jobs, while big businesses simply create all of the problems. Legislation is then focused around this belief, which typically gives large benefits to small businesses, while, conversely, large businesses are burdened with heavy regulations and interventions in their operation.
What are the effects of this legislation? Well, the impact on small businesses is to give them a competitive boost and an economic advantage in the marketplace, and the impact on larger businesses is to slow them down, add costs to whatever they try to do, and often to prevent them doing something that they want to do. Both of these effects of the legislation self-fulfill its assumptions. When small businesses are given a governmental helping-hand, it makes them more likely to be hiring new workers and thus creating jobs; when big businesses are punished with heavy regulation, it makes them weaker and prevents them from wanting to take on new risks that would create jobs.
Furthermore, though the effects of this legislation do create jobs if overall they are lessening the overall burden on businesses and hiring practices, often the other burdens that the government puts on other sectors of the economy such as big business stop employment from bouncing back to where it would have been in the absence of increased regulation and intervention. The government cannot claim that it has created jobs by just pointing to the ones they think they created while ignoring the incalculable costs in terms of jobs that they may have also created in the same process.
Moreover, the focus on jobs in “small” business can also be damaging, because it is quite possible (and indeed, is usually the case) that large businesses have the funds and the projects that warrant increasing the amount of labor they use. Small businesses, particularly in turbulent times, do not have this advantage and are not ideal for hiring new workers. Furthermore, they are more likely to fail or collapse, destroying any jobs that they may have been supporting. Big businesses are in general much more stable than smaller businesses.
The most egregious claims are, however, that jobs are somehow things that are in scarce supply that have to be hacked out of existence by some organization, usually claimed by those in the government to be the government itself. This is an absurdity. A job is simply a transaction of labor; the only thing that is scarce is the labor itself. Unemployment, or a “lack of jobs” is nothing more than a distortion, manipulation, or period of transition in the fundamental economic conditions which result in people selling their labor in exchange for a wage, and concomitantly, businesses buying labor for a price. The only thing necessary is to let hiring conditions change to how they need to change and unemployment will quickly vanish, as it is beneficial to no one for there to be unemployment in the economy.
The fundamental thing that needs to change in order for there to be full employment is for the price of labor, or wages, to be as flexible as possible. This is something that most people reject, for one reason or another. Labor unions, minimum wage laws, and regulations concerning hiring and firing practices all serve to make wages and the labor market inflexible, which means that when there is a sudden economic change, unemployment or disequilibrium emerges. Allowing a free market in the labor market is the only conceivable way to ensure full employment in any realistic way. Otherwise, there is no force to equilibrate the forces of supply and demand. Having the government decide to employ everyone who doesn’t have a job does not fix the problem, but arbitrarily and decisively does the exact opposite by permanently preventing labor from going to those lines of economic production where it is most needed.
