Throughout all of the arguments regarding the size of government, one important fact is often overlooked. It’s not about freedom and liberty or regulation and control. It’s not a matter of opinion, but a fact, which can be laid out mathematically, plain as day: Creating government jobs has a detrimental impact on the economy of the country many times as great as the benefit of creating private sector jobs. How, you ask? What’s the big difference? It’s just a difference of ideology, right? WRONG! Let’s start with an example, because who doesn’t love a good example. Let’s say you live in a country of 100,000 “working” citizens. And…of those 100,000, exactly 1,000 of them work for the government. Let’s also assume that every “working” citizen makes exactly $100,000 per year. (You can use any numbers you want. This isn’t a trick. It’s just easier to use round numbers.) So, the entire income of all citizens in the country is:
100,000 x $100,000 = $10,000,000,000 (ten billion dollars)
Keeping in mind that 1,000 of these “workers” are government employees, the entire government salaries would add up to a grand total of:
1,000 x $100,000 = $100,000,000 (one hundred million dollars)
So…in order to be able just to pay the government employees, the entire country would have to be taxed at a rate of:
$100,000,000 / $10,000,000,000 = .01 (1%)
And each employee would pay taxes of:
$100,000 x .01 (1%) = $1,000
Let’s assume the cost of all the government programs is equal to the government employee salaries, or $100,000,000 (This number will remain the same throughout). So, in the scenario described above, the entire government expenditures and tax revenue would both be $200,000,000 (two hundred million dollars) and each “worker” would pay $2,000 (2%) in taxes.
Now the fun part…JOB CREATION!!! Let’s create private sector jobs, first…
Business is booming and 1,000 new private sector jobs have cropped up in the last week, alone. Well, that’s an additional $100,000,000 in income across the nation, resulting in an increase of $2,000,000 of tax revenue. So, a country that once had $200,000,000 in tax revenue, now takes in $202,000,000. Just think what they could do with all of that extra money! Why, they could even hire twenty new government employees if they wanted to (20 x $100,000 = $2,000,000). But then, they’d really just be breaking even (not accounting for the tax on the new federal employees which amounts to a whopping $40,000…not even half of one workers’ salary).
So, right away, we can see that for every 1 government job that is created, there must be 50 private sector jobs created, just to break even. Not clear? Need to see it from a different angle? Let’s create government jobs instead…
New regulations require the addition of 200 new government positions. That’s an additional $20,000,000 in income, resulting in an increase of $400,000 of tax revenue. But wait! These new employees are on the government payroll, so their salaries need to be paid with tax dollars. (In this sense, creating jobs with stimulus money provided by the government is the same as creating government jobs.) So…$200,000,000 in original tax revenue, plus the additional $400,000 in taxes, minus the $20,000,000 in salaries leaves the government with just $180,400,000. That’s $19,600,000 less in tax revenue than before the jobs were created. I guess some funding will have to be cut! Are you getting the picture? Allow me to sum it up for you:
1,000 private sector jobs = $2,000,000 increase in tax revenue
200 government jobs = $19,600,000 decrease in tax revenue
In other words, creating one fifth as many government jobs caused roughly 10 times as much economic devastation as the benefit that would have been derived from creating private sector jobs. Well, there’s only one way to make up the difference…tax increases for everyone! It’s simple to see that creating government jobs, especially in times of economic crisis, could be potentially devastating to the economy. Real growth doesn’t come from government. It comes from private industry. This is not just a matter of ideological beliefs…It’s a matter of fact. Do the math!