Who gets hired?

I think Russ Roberts makes a very, very good point in this post. Roberts notes a Wall Street Journal story which highlights a yacht-making company that is diversifying from the production of yachts to windmills (green energy!), at the least partial inducement of stimulus money. The company, Energtx Composites, hired 20 people as a result of the stimulus money. As Roberts says:

Twenty new hires. OK, it’s not a big number. But maybe it’s not even 20. Maybe those 20 new hires are actually zero new jobs. How can that be? The key question is who are those twenty people? Are they people who were unemployed? Or are they people who quit jobs they already had because they were good at building windmills or re-tooling machinery and answered the ad at Energtx? If it’s the latter, the stimulus money just bids up the wages of people with skills matching what the stimulus money is going toward. If a lot of the 12% of the unemployed are construction workers who are good at laying drywall for new houses, not very many of them are going to get helped by keeping teachers employed or re-tooling a yacht-making factory. Especially as long as there are lots of empty houses in the area.

I think there is a lot of truth in this. When a company hires 20 people, there is little reason to assume that all of them, a majority of them, or even any of them were previously unemployed. This is especially true for highly-skilled professions. It isn't difficult to envision a scenario in which those hired were previously employed at another company in which their skills related to the production of windmills (welding? the operation of specialized machinery?) were needed. Now their skills have been transferred from one industry in which they were needed to another industry which is only viable due to the provision of government funds. In other words, the government -- in seeking to stimulate employment -- has only succeeded in actually reallocating resources to a less productive use.

I don't mean to imply this is the result in every instance, but it is absolutely worth considering. Make sure to check out the rest of Roberts' post.