January 3, 2003
The Invisible Story of Job Creation
You never know when an old, nearly-forgotten college lecture, buried deep in the recesses of your brain, will suddenly bubble up to the surface of your consciousness with new relevance. Thus as I sit before my computer screen, mulling over the events that have taken place in the Indiana economy over the last twelve months, my mind keeps returning to a classroom of long ago, listening to one of my mentors explaining the Law of Large Numbers. If that connection doesn't hit you like a lightning bolt, then read on.
When it comes to reviewing the state's economic performance, our attention is inevitably drawn to big events. Indiana in 2002 has provided us with plenty of those. Unfortunately, with the hangover from the recession of 2001 still very much evident, they tend to be unpleasant ones.
The softness in the manufacturing economy, the downturn in the stock market, and the poor decisions of some prominent company executives and their boards all contributed to a fairly sizable pile of grim business news stories for the year. The state's budget deficit looms like a dark cloud over the legislature, overshadowing its laudable efforts to reform the state's tax structure earlier in the year.
And it has been a boom year for the bankruptcy business. The Chapter 11 filings by big employers like United Airlines and Conseco were not entirely unexpected, but neither were they welcome. Ironically, neither event can truly be considered recession-related. Yet with tens of thousands of jobs at stake, the downside looms hugely for the entire central Indiana region as a result.
It's when we turn to the question of how the economy will replace those jobs that the old lecture comes rushing back to me. That's because the economy, like a lot of things in life, contains an extraordinary amount of randomness. On any given day, in any individual community, that process can produce events that blow hot and cold for our collective livelihoods.
When you add it all up, over the course of time, those upward and downward spikes in the economy tend to even out. They have to, since the buildings, people and jobs in the world outside our windows usually don't disappear or double in number overnight. That's the law of large numbers in action, smoothing out the good and bad news over a longer period of time.
But that faith is tested every time we're confronted with a loss, whether that loss is due to something within our control or not. The kinds of job losses that we're likely to hear about and remember are the largest ones. Plant closures, bankruptcies and other bad news happen all at once.
Yet the tallies of job creation, when we hear it, never seem to stack up quite as high. Is it any wonder that some outlooks are so dire?
But now the image of my wise teacher comes before my eyes. The Law of Large Numbers may call for a balance, but it doesn't say exactly how that balance comes about. Equal and offsetting days of good luck, and bad luck, are only one possibility. Another way to offset bad news is simply to have a much larger number of ordinary days.
That last description fits the process of economic growth to a tee. Job creation almost occurs in dribs and drabs -- the delivery company that adds a few drivers, the mall store that opens, or the new physician or dentist that comes to town. Any review of the past year's economic events will miss those events, simply because they really aren't news. Yet collectively they are as big of a story as anything that has happened this year in the legislature, corporate board rooms or bankruptcy court.
That ordinary process has essentially stopped the net loss of jobs in the state economy in 2002. Through the twelve months ending in November 2002, Indiana 's payrolls were down by only about 13,000 jobs, with modest, but measurable growth occurring since the low point of last summer. That may end up being the only story of 2002 that really matters.
About the Author
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