Jobs & Regulation Revisited

Blake Hudson called my attention to a nice post on this subject at ProPublica.  The post has links to two very interesting documents. The first is to a Census Bureau report showing that hardly any employers attribute layoffs to regulatory burdens.  The other is to a very careful study by Dick Morgenstern, a highly respected environmental economist, which found a possible small but positive effect of regulation on jobs:

We find that increased environmental spending generally does not cause a significant change in industry-level employment. Our average across all four industries is a net gain of 1.5 jobs per $1 million in additional environmental spending, with a standard error of 2.2 jobs—an insignificant effect. In the plastics and petroleum sectors, however, there are small but significantly positive effects: 6.9 and 2.2 jobs, respectively, per $1 million in additional expenditures. These effects can be linked to favorable factor shifts—environmental spending is more labor intensive than ordinary production—and relatively inelastic estimated demand.

I generally try to avoid accusing people of bad faith just because I disagree with them, but I am starting to wonder about the motives of the people who are promoting the “regulation kills jobs” message.

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Reader Comments

4 Replies to “Jobs & Regulation Revisited”

  1. STARTING to wonder? Until we agree on an appropriate valuation system of the ecosystem benefits being degraded how can an algorithm even be created to evaluate appropriate costs of regulation. We’re soooo far away from a fair system…..

  2. Regulation has many effects. It often causes innovation. Paint companies developed powder based paint in response to VOC regulations, but the new paint is also more durable and easier to apply. Televisions developed in response to energy efficiency regulations also have better pictures. The improvements in automobiles due to fuel efficiency and safety regulations are too numerous to mention. The market that California has developed for renewable energy has caused more competition as more companies enter the field with one result that the price of PV solar panels has fallen by more than 50% in the last two years. Sometimes regulation triggers investment. The California reformulated gas regulations in the 1990s caused oil companies to invest $5B in refinery upgrades that would not otherwise have occurred. Air Quality benefited, and thousands of construction jobs were created Plus, California refineries became more technologically sophisticated and more competitive. The requirements to install selective catalytic reduction created thousands of jobs in the L.A. basin during the 1990s. 33% RPS is causing approximately $75B in investments in California that would not have occurred but for the regulations. These are just a few of many examples. Regulations protect the environment and public health. Many times in the process they also spur innovation, improve products, increase productivity, stimulate investment and create untold numbers of jobs. Let’s not buy into a simplistic frame built on rhetoric instead of facts. Studies are good; but let’s not forget the powerful stories that fill in the blanks.

  3. The Morgenstern, et al., study is quite limited in its implications, as the authors acknowledge. Among other things, they note that their paper does not measure any effects on job creation due to broader, economy-wide effects. They also state some assumptions — such that regulatory burdens are relatively uniform within a given industry — that have been disproven in other studies, and make others — such as that the full effect of environmental regulations can be measured by environmental expenditures within an industry — that are questionable (a point they also acknowledge). As a consequence, their analysis does not tell us much of anything about what employment would have been without regulation, as those firms within an industry that survive or expand post-regulation would almost certainly be those that increased their environmental expenditures to cover compliance costs, whereas those firms that suffered (and at which jobs were lost) could well be spending less.

    The jobs-regulation connection is more complicated than some suggest, to be sure (as I discussed in this post, but there are studies showing an effect, including the work of MIT’s Michael Greenstone, former Chief Economist for President Obama’s Council of Economic Advisers. That environmental regulations can reduce job growth doesn’t mean they are the source of our current economic woes — they are not — nor does it mean that they are unwise. Much more is required before you can honestly accuse those who believe environmental regulations cost jobs are acting in bad faith.


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About Dan

Dan Farber

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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