This scope-insensitivity has been well documented in the psychology literature (e. . Hsee and Rottenstreich 2004) with the basic idea being that people are generally far less sensitive to differences in magnitudes of values than we should be. Even though 10,000 is twice 5,000, when we subjectively assess how different those numbers are, we tend to think that 10,000 is only directionally larger than 5,000, but not that it is much larger. In the context of job creation and loss, it’s easy to imagine how this scope-insensitivity could lead to some bizarre and counter-productive situations. For example, when a factory closes, shuttering jobs, people may consider moving away from that location in that the local economy may suffer. This perception is likely to appear whether the factory closing resulted in 500 or 5,000 layoffs, even though the former is likely just a small ding on the local economy whereas the latter may actually signify real troubles ahead. Because we do not tend to notice the size of difference between these values, our judgments of what they mean for the company doing the hiring or firing, and the region that these companies situate in, may be woefully inaccurate.

To further test this idea, I ran a simple experiment earlier this week where I asked roughly 100 participants to read a made-up news story about a company that either plans to add jobs or lay off workers in the near future. I also varied whether the story wrote about a change in 500 or 5,000 jobs. This resulted in four versions that participants were randomly assigned to read about—a gain of 500 jobs, a gain of 5,000 jobs, a loss of 500 jobs, and a loss of 5,000 jobs. I then asked them to evaluate what they thought such a job change would do to the local economy. The chart below summarizes the results, but the key point here is this: when jobs are lost, whether it be 500 jobs or 5,000 jobs, people tend to think that both will have the same impact on economic prospects for people in that area. However, when jobs are gained, people actually do perceive a difference between 500 jobs gained and 5,000 jobs gained, albeit the perceived difference is quite small. In this experiment, the larger job gain is 1,000% bigger than the smaller job gain, and yet the difference in perception of impact on the economy is only slightly higher in the former case. The punch line here is that people are very good at judging the direction of an effect (job gains are good, but job losses are bad), but we are not very good at judging differences in scope (500 jobs lost is seen to about the same as 5,000 jobs lost).

Source: Jeff Galak

We are undoubtedly likely to see more news stories discussing job creation and loss in the coming months and years. What’s important to understand is that not all such stories should be treated the same way. It is important for us as consumers of such information to appreciate that differences in magnitude not only exist, but matter greatly. After all, if we want to get a good appreciation of how well our economy is doing, it matters not just that jobs are being added or taken away, but how many jobs are being added or taken away. If we make ourselves aware that we are subject to such scope insensitivity, we can be a bit more accurate in our assessment of the economic prospects of employers, neighborhoods, regions, and even our country as a whole.