Do environmental regulations really hurt jobs? Research review

 

(David Trilling)

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One of the most persistent arguments against efforts to stop man-made global warming is that environmental regulations — mandates to reduce carbon emissions or require polluters to pay, for example — put people out of work. Proponents of such laws argue that they can create jobs by encouraging technological innovations. Critics say they burden business.

Barack Obama has hoped his legacy will include strong mechanisms to limit global warming. But President-elect Donald Trump — who has called climate change a “hoax” — has promised to undo much of Obama’s effort and gut the Environmental Protection Agency (EPA), the U.S. government body founded in 1970 to “protect human health and the environment.” Trump’s promises hew to traditional Republican doctrine.

Despite the rhetoric, economists have not found clear evidence of the net effect of environmental regulations on employment. The impact often depends on the type of industry and the health of the economy. But there is little indication that environmental regulations substantially impact overall employment figures.

When an economy is strong and unemployment low, workers displaced by a regulation — one that would shutter a coal-fired power plant, let’s say — will soon find work elsewhere, according to a 2015 study in the Journal of Benefit Cost Analysis. The trouble is, these jobs may be in a different location — at a solar-powered plant in another state, perhaps — requiring a costly move. Put another way, “environmental regulation reallocates labor demand,” argues a 2015 paper in the Review of Environmental Economics and Policy.

Costs: A 2013 paper in the Journal of Environmental Economics and Management describes how pollution-abatement regulations appear to affect larger businesses more than smaller ones. The increased costs required to comply with such regulations rise along with the size of a firm; firms with more than 1,000 employees spent between $1.92 and $5.49 more per $1,000 of output on pollution-abatement efforts than firms with between 1 and 49 employees.

Eco-friendly policies could help companies save money on energy and materials, thus becoming more efficient, argues a 2016 paper published by the University of Bonn’s Institute for the Study of Labor. That efficiency can help competitiveness or even offer a firm a first-mover advantage, both of which would lead the firm to hire more workers. But higher costs can also have a negative net effect on employment by reducing demand for the firm’s goods and thus demand for their labor.

Taxes vs. standards: A 2016 paper published by the National Bureau of Economic Research examines the impact of potential environmental regulations on unemployment by comparing the effect on firms of a pollution tax (a fee a firm pays for polluting) with a performance standard (a restriction on the amount of emissions per unit of output). The tax would substantially reduce employment in the polluting sector, the paper argues, while employment would increase in sectors not impacted by the tax. The net job impact is small, even in the short-term.

But a performance standard may have less of an effect on employment: “The price increase for polluting goods is much smaller under a performance standard than under an equivalent emissions tax, and thus the substitution in consumption and corresponding shift in employment is correspondingly smaller.” The authors suggest that if policymakers wish to reduce employment sector shifts, legislating a performance standard is more helpful than a tax.

Health benefits and the greater good: An award-winning 2013 paper by Berkeley economist W. Reed Walker points to “increasing evidence that benefits from environmental policy far exceed the costs.”

After amendments to the Clean Air Act in 1990, the average worker in a newly regulated plant lost 20 percent of his or her income during relocation and retraining over the next few years, equivalent to about $5.4 billion in foregone earnings. But that cost is dwarfed by the national health benefits the EPA estimates the regulation encouraged over 20 years — valued between $160 billion and $1.6 trillion. “In light of these benefits, the earnings losses borne by workers in newly regulated industries are relatively small,” Walker writes.

Walker is a co-author of a forthcoming paper (draft here) in the Journal of Political Economy that calculates how lower pollution at birth is correlated with higher salaries later in life: “We show that the approximate 10 percent reduction in TSP [total suspended particulates] that resulted from [the 1970 Clean Air Act] is associated with a 1 percent increase in age-30 earnings.”

Wage disparities: European Union-funded research observes that in the U.S., so-called “green” jobs pay roughly 4 percent more and tend to be concentrated in areas with high-tech firms. These jobs are driven less by regulation and more by local green activism and federally funded research labs — in short, these often are in highly educated areas with universities.

A 2015 working paper from the University of Calgary observes that a comprehensive carbon tax on all polluters in British Columbia increased employment by 2 percent a year between 2008 and 2014: “The most carbon-intensive and trade-sensitive industries see employment fall with the tax while clean service industries see employment rise.” But the growth in labor supply may have depressed wages.

Designing compassionate policy: New environmental policies can be designed to minimize harm. Though most policies will result in no net change to employment, policies that could result in large job losses in regions with high unemployment (especially at times of high nationwide unemployment) could be offset by targeted assistance and job-creation programs such as targeted tax credits, argues a 2015 paper in the Review of Environmental Economics and Policy. The paper holds that the social costs (like unemployment) are still outweighed by the net benefits (like healthier children) of scrapping dirty energy in favor of green alternatives.

Attitudes: Labor union members are more likely than the population at large “to display pro-environmental attitudes and behaviors,” a 2016 study in the Labor Studies Journal finds. Different unions, though, have often come out on different sides of arguments about regulatory change, such as the Kyoto Protocol on global warming.

Other resources:

  • The EPA has a vast database of numbers relating to the implementation of environmental policies. Employment data published by the U.S. government is available from the Census Bureau and the Bureau of Labor Statistics.
  • The EPA also publishes a list of environmental regulations and executive orders.
  • Examples of complaints about regulations some members of Congress have raised can be viewed here, here and here.
  • Journalist’s Resource has profiled research on how environmental regulations can impact manufacturing.

Citations:

“Are Union Members More or Less Likely to Be Environmentalists? Some Evidence from Two National Surveys”
Vachon, Todd E.; Brecher, Jeremy. Labor Studies Journal, 2016. doi: 10.1177/0160449X16643323.

“Do Environmental Regulations Disproportionately Affect Small Businesses? Evidence from the Pollution Abatement Costs and Expenditures Survey”
Becker, Randy A.; Paskura, Carl Jr.; Shadbegian, Ronald J. Journal of Environmental Economics and Management, 2013. doi: 10.1016/j.jeem.2013.08.001.

“Estimating the Job Impacts of Environmental Regulation”
Belova, Anna; et al. Journal of Benefit-Cost Analysis, 2015. doi: 10.1017/bca.2015.14.

“Impacts of Regulation on Eco-innovation and Job Creation”
Horbach, Jens. IZA World of Labor, 2016. doi: 10.15185/izawol.265.

“The Effect of Endangered Species Regulations on Local Employment: Evidence from the Listing of the Lesser Prairie Chicken”
Melstrom, Richard T.; Leez, Kangil; Byl, Jacob P. University of Minnesota working paper. 2016.

“Measures, Drivers and Effects of Green Employment: Evidence from U.S. Local Labor Markets, 2006‐2014”
Vona, F.; Marin, G.; Consoli, D. French Economic Observatory working paper, 2016. doi: 10.2139/ssrn.2815393.

“The Social Value of Job Loss and Its Effect on the Costs of U.S. Environmental Regulations”
Bartik, Timothy J. Review of Environmental Economics and Policy, 2015. doi: 10.1093/reep/rev002.

“The Transitional Costs of Sectoral Reallocation: Evidence from the Clean Air Act and the Workforce”
Walker, W. Reed. The Quarterly Journal of Economics, 2013. doi:10.1093/qje/qjt022.

“Every Breath You Take – Every Dollar You’ll Make: The Long-Term Consequences of the Clean Air Act of 1970”
Isen, Adam; Rossin-Slater, Maya; Walker, W. Reed. Journal of Political Economy, forthcoming.

“Unemployment and Environmental Regulation in General Equilibrium”
Hafstead, Marc A. C.; Williams, Roberton C. III. National Bureau of Economic Research working paper, 2016.

“What Shapes the Impact of Environmental Regulation on Competitiveness? Evidence from Executive Opinion Surveys”
Peuckert, Jan. Environmental Innovation and Societal Transitions, 2013. doi: 10.1016/j.eist.2013.09.009.

“Jobs and Climate Policy: Evidence from British Columbia’s Revenue-Neutral Carbon Tax”
Yamazaki, Akio. University of Calgary working paper, 2015.

 

Keywords: job cuts, environment, utilitarianism, environmental policy, manufacturing, factory jobs 

    Writer: | Last updated: November 21, 2016

     

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