Job creation datapoints of the day
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Lending to small businesses is often a spectacularly good way of creating jobs — and almost always creates more jobs per dollar spent than any kind of infrastructure investment. One can argue at length about just how many dollars it costs to create one job in the infrastructure field, but whatever numbers you come up with, they’re going to be much higher than, say, the numbers that Linda Levy, the CEO of Lower East Side People’s Federal Credit Union, gave me for our small-business lending. (I’m on the board there.)
We’ve made 25 small-business loans of late, averaging $17,000 apiece. Linda reckons that on average each loan means the retention of one job, since someone with a job would lose it were it not for the loan. But put that to one side; she also says that the 25 loans, between them, have resulted in 10 brand-new full-time jobs as well. That’s $42,500 per job created, which is a pretty good number.
The insight here is that small businesses don’t tend to hire people who don’t pay for themselves: the small-business loan just gives the necessary push to make that job possible in the first place. And small businesses tend to be more labor-intensive than capital-intensive, so new loans are likely to be transformed into new employment.
Of course, if you look at poorer countries, the dollars-per-job-created figures are more impressive still. Here’s the latest press release from the Sustainable Preservation Initiative, about a new project it’s funding in Peru. With a single grant of $48,000, the SPI is helping to turn an important archeological site into a source of tourism-related cash for a poor local community, thereby creating an enormous incentive to protect that site rather than looting it or building on it. And, of course, creating jobs, too:
Together, the workshop, store and tourism activities are expected to create more than twenty additional jobs during the construction period and ten or more new permanent jobs thereafter.
That’s less than $5,000 per permanent job created — plus 20 construction jobs thrown in, as it were, for free.
In general, if you want to create the maximum number of jobs for the smallest amount of money, the best way of doing so is to provide catalytic capital which helps to give a small business the step-up it needs to sustain new jobs on a permanent basis. The problem is that finding such businesses, and underwriting loans to them if you’re giving out loans rather than grants, is expensive and time-consuming, and it’s hard to scale on a national basis. But when it works, it can work spectacularly well.