Can a Lean Six Sigma Tax Policy Lead to Increased Job Creation?
With the United States presidential election coming up and so much emphasis being placed on the economy, I can’t help to wonder why there has not been much mention of tax policies, which promote and encourage companies to become more lean and cost effective and thus, more competitive.
One would expect the application of Lean Six Sigma to impact employment because of increased corporate revenue. Through the application of Lean Six Sigma, companies should see greater revenues as result of being able to produce higher quality products and services faster and at less cost in comparison to other companies that do not implement lean six-sigma or other process improvement initiatives. As revenues increase, companies will eventually have a requirement to hire more people to support the business growth.
Given the priority over job creation, introducing a policy to encourage companies to implement lean six-sigma makes logical sense.
Note that although Lean Six Sigma should increase corporate profits, the link between corporate profits and job creation has been debatable; therefore, I have not included it as part of this article.
This short article discusses some lean six sigma tax incentives that could have significant economic benefits.
Link between increased revenue and job creation
Before discussing a tax incentive to promote process improvement, it is critical to test our theory that increased revenue and production results in increased job creation. Therefore, I looked at the trends of both net job creation growth and net sales and production growth from 1994 to 2011 for various OECD countries. Note that net job creation is defined as the total number of employed less the unemployed.
Note: Out of all the selected OCED countries presented in this article, only Australia appears to have a 1-year lag between sales and production and net job creation, e.g. the value for net job creation starts at 1995 while the sales and production numbers start at 1994.
In the graph above, the growth in net job creation tends to follow the growth in sales and production for Australia. For example, the growth in sales and production fell from 6% to 4% (from 1994 to 1996), while job creation decreased from about 6% to just above 1% from 1995-1997 (remember there is a 1-year lag).
The graphs below show the same two growth rates for Canada, Germany, and the United States over the same period. Since there was no lag between sales and production and job creation for these countries, and therefore, both variables are displayed from 1994-2011.
For these three countries, it is clear that the growth in net job creation follows a similar trend to the growth in sales and production.
Therefore, through the examination of this OECD data, and this data alone, it appears that increased sales and production growth may support growth in net job creation.
Lean Six Sigma Tax Policy
As we have shown that firms become more efficient and effective relative to their competition, the more revenues they will incur, and, that as revenues increase, so does job creation. In this case, the notion of providing some sort of tax incentive to encourage firms to implement improvement strategies makes perfect sense.
You may, however, ask yourself, if the benefits of implementing improvement using such proven methods, such as lean six sigma, are so obvious, then why are incentives required to encourage companies to move in this direction? The answer I believe is that, many firms concern with their short term survival, in times of low business and consumer confidence as we have seen in recent years. Firms would rather reserve excess cash flow to weather unfavourable economic conditions.
Peaks and valleys in economic cycles come and go and firms may then have to focus on short term objectives. But there will come a point where if firms do not transform the way they deliver services and products, they may not be able to compete with other companies that have already implemented more efficient and effective processes. This is where a tax policy or incentive can assist companies so they can be more competitive.
The tax policy can be quite simple. Companies that want to implement a process improvement initiative can be given a partial tax credit to be used to finance the project. If the project is successful results in higher revenues and the company hires more people, then the company would be given the remainder of the tax credit.
By paying out a portion of the tax credit when the project is successful reduces the risk of the government investing in failing projects.
In this article, I have presented some information to suggest that growth in sales and production leads to job creations and I have presented an idea that governments could use to assist companies in becoming more competitive and increasing job creation. So what are your thoughts on governments use a lean six sigma tax policy to assist in job creation. Do you think such a tax policy would work?
By Kyle Toppazzini
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More Valuable Resources
The following URLs provide great additional information on Lean 6 Sigma
Toppazzini and Lee Consulting Lean 6 Sigma Consulting at -Lean Six Sigma Consulting
Linkedin Six Sigma Group at http://www.linkedin.com/groups?home=&gid=37987&trk=anet_ug_hm
ISixSigma web site at www.isixsigma.com
ASQ web site at www.asq.org