Working For Jobs

by Kristen Sheeran.

Cross-posted from Real Climate Economics.

Paul Krugman’s column in The New York Times Thursday laments one of the many ironies of our time: Politicians
in Washington are finally talking about job creation, but Republicans
(and some Democrats, I’m sure) pin their hopes for employment on
environmental deregulation. As Krugman points out, “Serious economic analysis actually says that we need more protection, not less.”

By serious economic analysis, Krugman means peer-reviewed articles
published in academic journals over the last few decades that have
probed the relationship between environmental regulations, employment,
and economic growth. He doesn’t mean the American Petroleum Institute’s
latest report that purports to show job growth potential through … wait
for it … relaxing restrictions on oil and gas extraction. He means the
latest findings by Yale University economist William Nordhaus, published in the American Economic Review [PDF], the top-ranked journal in economics, that finds that the economic cost
of air pollution exceeds the value added of coal-fired electric
generation by a factor of nearly six to one. And this estimate doesn’t
include the economic damages from climate change. Pollution-related
costs impede productivity and growth in the U.S. economy. Imposing more
of these costs on society through deregulation is not only undesirable,
it is bad economic policy.

So let’s review what economists do know [PDF] about the relationship between environmental regulation and jobs. The
oft-cited concern is that environmental regulations will increase
production costs, raising product prices and decreasing the quantity of
goods and services demanded. The good news, however, is that empirical
evidence finds little support for wide-scale job losses or relocations
arising from strengthening of environmental policies in the U.S.

The economics research on this topic extends back over the last few
decades. The Clean Air Act Amendments of 1990 marked the last
significant package of environmental regulation passed in the U.S., and
the creation of NAFTA in 1994 presented new opportunities for U.S. firms
to relocate abroad to avoid environmental regulations. Thus, there is extensive literature that covers a long time period that evaluates
how environmental regulations impact businesses, employment, and income.

The economics literature covering this history supports three
conclusions. The first conclusion is that businesses are unlikely to
relocate to avoid compliance with environmental regulations. The
empirical evidence shows that there has been little movement by U.S.
firms to other countries to escape environmental regulatory burdens. Nor
has there been a migration of new investment in dirty industries to
developing countries with lax regulations, the so-called “pollution
havens”. Over the last few decades of the neoliberal era, both dirty and
clean industries have relocated outside of the U.S., but that movement
has been driven mostly by the pursuit of lower wage and benefit costs
(especially health costs), which comprise a much higher percentage of
their total costs (Goodstein 1999; Gallagher 2006 [PDF]). What the research has found is that environmental compliance costs are generally below 2 percent of total business costs (Jaffe et al. 1995 [PDF]);
the potential savings are just not large enough to compel relocation to
escape environmental regulations alone. Economists searching for
evidence of widespread flight of polluting industries to different
countries or different states within the U.S. have yet to uncover
evidence of a trend. (This is not to say that firms that leave the U.S.
in pursuit of lower labor costs behave as good environmental citizens
abroad).

The second major conclusion economists have drawn from studies
examining the impacts of regulations on businesses and competitiveness
at the national or regional level is that that plant closings and
layoffs as a result of environmental regulations are actually rare.
Numerous independent studies show this. Layoffs that can be attributed
to environmental regulations account for only one-tenth of 1 percent of all mass
layoffs (of over 50 employees) nationwide. This is equivalent to roughly
1,000 to 3,000 jobs per year across the entire country. For example, less
than 7,000 jobs were lost between 1990 and 1997 as a direct result of the
Clean Air Act Amendments. Over that same period, 10 million U.S. workers
were laid off for non-environmental reasons (Goodstein 1999).
Among the reasons for major layoffs, as reported by the Bureau of Labor
Statistics, environmental and safety-related shutdowns are among the
least common, accounting for about 0.1 percent of job losses (Goodstein 1999).
A study of the heavily regulated steel, petroleum, plastics, and pulp
and paper industries concluded that, “while environmental spending
clearly has consequences for business and labor, the hypothesis that
such spending significantly reduces employment in heavily polluting
industries is not supported by the data” (Morgenstern et al., 2002, p. 25).

The third major conclusion is that at the economy-wide level, there
seems to be no real trade-off between environmental regulation and
growth. Environmental regulation leads to a very slow shift in the
composition of spending: Jobs are gained as workers produce, install, and
maintain cleanup equipment and engage in retrofits, and are lost as
firms pass on those cost increases to consumers, who have to cut back
their purchase of goods and services from that sector. Environmental
regulation begins a slow shift away from the products of dirty industry.
An example would be the shift into new recycling jobs and out of waste
disposal jobs, as the percentage of waste recycled in the U.S. rose
significantly in the 1990s.

While job loss can be catastrophic to an individual worker, net job
loss (or gain) is the variable that should drive public policy. Small
job loss in a particular plant or industry because of a change in
regulatory environment is just noise against the backdrop of the
millions of employed and unemployed in the U.S. economy. And, the
handful of job losses has to be compared to the jobs gained elsewhere in
the economy as a result of the new regulations. For example, a recent report finds that coal ash regulations can create as many as 28,000 jobs.

As with all public policy, changes in environmental regulations
create winners and losers. Specific businesses or industries may be
disproportionately impacted (for example, the coal workers from national
carbon legislation). Labor market conditions in the U.S. will continue
to be more heavily influenced by larger structural changes in the U.S.
and global economy than any proposed regulatory changes. If we want to
get to the heart of the unemployment problem in the U.S., we need to
explore these structural issues. Exploiting the public’s deep need for
job creation to promote an anti-regulatory agenda is dishonest and
dangerous.

Related Links:

Can Rick Perry create 1.2 million energy jobs?

The EPA doesn’t regulate farm dust, it regulates air pollution

Even Republicans favor the EPA rules that Republicans are trying to block

View full post on Grist.org – the latest from Grist