Free Market

Tech Companies and Other Legacy Corporations Aren’t the Economy’s Job Creators

Amid a whole host of layoffs by large tech companies like Facebook and Twitter, along with a variety of e-commerce businesses, you might be surprised to learn that the US economy added 261,000 jobs in October. Headlines riddled with talk of inflation, hiring freezes, and fear about the future of the economy probably make you wonder what’s going on.

Art Raymond at the Deseret News did a great job this week discussing why certain tech firms are currently cutting their labor force. It boils down to skyrocketing pandemic growth for certain industries, especially in e-commerce, inevitably leading to a cooling down period as people leave their homes and go back to work in-office. These companies scaled up to meet the demand of the past few years, but now they must scale back as that demand wanes.

But there is a broader conversation to be had. As large companies in the US lay off workers or implement hiring freezes, why do we continue to see significant job growth?

First, you need to realize that millions of jobs are created and lost each month. The number reported by the Bureau of Labor Statistics seen all over the news is the net number of jobs created or lost each month. The economy is constantly in flux creating new opportunities and ending unprofitable ones.

Second, all that job creation doesn’t come from large corporations. Sure, a lot of the labor force can be found working within legacy companies that are older and larger, but that’s not where the job growth is. Job growth principally comes from small businesses, especially those that are less than five years old. You may have heard politicians say in the past that “small businesses are the backbone of America.” 

The funny thing is that they are actually right.

Unfortunately, a lot of government economic policies focus on large legacy corporations through tax incentives and subsidies. State and local governments trip over themselves trying to convince companies to come to their state or city (even though generally the company is coming anyway). What state and local officials should be doing is focusing on the real job creators—small businesses and entrepreneurs.

So as the headlines continue to show job growth, keep in mind that start-ups and small businesses are the ones contributing the most to those numbers. We and the officials we elect would be wise to remember that as we participate in the economy and in civil discourse.