Does government regulation really kill jobs? Economists say overall effect minimal.
By Jia Lynn Yang,
Beverly, Ohio — The Muskingum River coal-fired power plant in Ohio is nearing the end of its life. AEP, one of the country’s biggest coal-based utilities, says it will cut 159 jobs when it shuts the decades-old plant in three years — sooner than it would like — because of new rules from the Environmental Protection Agency.
About an hour’s drive north, the life of another power plant is just beginning. In Dresden, Ohio, AEP has hired hundreds to build a natural-gas-fueled plant that will employ 25 people when it starts running early next year — and that will emit far fewer pollutants.
The two plants tell a complex story of what happens when regulations written in Washington ripple through the real economy. Some jobs are lost. Others are created. In the end, say economists who have studied this question, the overall impact on employment is minimal.
“If you’re a coal miner in West Virginia, it’s not a great comfort that a bunch of guys in Texas are employed doing natural gas,” said Roger Noll, an economics professor at Stanford and co-director of the university’s program on regulatory policy. “Some people identify with the beneficiaries, others identify with those who bear the cost, and no amount of argument is ever going to change their minds.”
The arguing has lately turned into a brawl. In the face of the country’s unemployment crisis, many politicians have portrayed regulations as the economy’s primary villain.
House Republicans have identified 10 “job-destroying regulations” they want to repeal, and a steady stream of bills have been proposed to block environmental rules governing everything from cement plants to boilers. GOP candidate Mitt Romney has vowed that on his first day as president, he will “tear down the vast edifice of regulations the Obama administration has imposed on the economy.” The White House, meanwhile, says it is making a determined effort to assess how rules are affecting jobs.
The critique of regulations fits into a broader conservative narrative about government overreach. But it also comes after a string of disasters in recent years that were tied to government regulators falling short, including the financial crisis of 2008, the BP oil spill and the West Virginia mining accident last year.
Whenever a firm lays off workers, the bureau asks executives the biggest reason for the job cuts.
In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.
Limits on emissions
Set along a bucolic stretch of road two hours east of Columbus, the smokestacks of the Muskingum River plant rise suddenly from the landscape like skyscrapers. Beside the plant, huge mounds of coal wait to be lifted by a conveyor belt, then dumped into machines to be pulverized into powder before being burned.
Last year, the plant emitted 98,515 tons of sulfur dioxide, the third-highest total in the country, according to data collected by the EPA.
The agency is tightening limits on sulfur dioxide emissions under the Cross-State Air Pollution Rule. To comply, many older coal plants must install enormous devices called scrubbers, which remove sulfur dioxide from the exhaust emitted by the smokestacks.
Built more than 50 years ago, the Muskingum River plant has no scrubbers, and the company says it cannot add them in time to meet the EPA’s deadlines.
AEP chief executive Mike Morris said that retrofitting plants would add jobs but that he needs more time from the EPA.
“We have to hire plumbers, electricians, painters, folks who do that kind of work when you retrofit a plant,” Morris said. “Jobs are created in the process — no question about that.”
Another AEP coal plant in nearby Conesville required more than 1,000 temporary workers to build a scrubber for one of its units. The plant then added 40 full-time employees to monitor the scrubber, which doubled the footprint of the unit. The device requires so much machinery it has its own control room.
Ralph Izzo, chief executive of the New Jersey utility PSE&G, said installing scrubbers at two of his company’s coal plants created 1,600 jobs for two years, plus 24 permanent ones.
Critics from groups such as the Environmental Defense Fund say that AEP has had plenty of time to comply with the rules, which have been years in the making, and that some of these coal plants are too old and too dirty to continue operating.
“Everyone has this idea that the EPA could shut a plant down,” said Rachael Belz, organizer of the coal program at Ohio Citizen Action. “But these decisions are being made by AEP, or Duke Energy. These are business decisions.”
Some of the coal plants are approaching the end of their life spans anyway. And the price of natural gas has plummeted as people have discovered how to unlock gas from shale rock.
“The coal-to-gas switch is already on for pure economic reasons,” said Mark Fulton, global head of climate-change investment research at Deutsche Bank.
He recently co-authored a study concluding that, by 2020, the shift to natural gas and renewables will generate a net 500,000 jobs in the United States.
Standing on the construction site of AEP’s natural gas plant in Dresden, Ron Borton spoke excitedly about the future.
“I’m making the shift from coal to gas,” said Borton, who spent 20 years working at the Conesville coal plant before becoming operations and maintenance superintendent of the Dresden project two years ago.
“I looked at this as an opportunity to learn something new,” he said. “You don’t hear many people complaining about a gas plant.”
But the Dresden plant will require fewer workers. There will be just 25 full-time AEP employees, compared with the 159 at Muskingum.
“Our level of automation is really heavy,” Borton said. “One guy could run this plant.”
Attacks on regulation
There is no question that a regulation can add costs for businesses and sap the resources and time of busy executives.
Companies have long complained that spending money following rules means there’s less left over to invest in research or expand their businesses.
But recently, more in Washington are making another case. They argue that getting rid of regulations will directly create jobs.
President Obama has heard versions of this argument from powerful business lobbying groups, individual chief executives — including members of his own jobs council — and his rivals on the campaign trial.
Economists who have studied the matter say that there is little evidence that regulations cause massive job loss in the economy, and that rolling them back would not lead to a boom in job creation.
Firms sometimes hire workers to help them comply with new rules. In some cases, more heavily regulated businesses such as coal shrink, giving an opportunity for cleaner industries such as natural gas to grow.
“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” said Richard Morgenstern, a senior fellow at the nonpartisan think tank Resources for the Future who worked at the EPA starting under the Reagan administration and continuing into President Bill Clinton’s first term.
A decade ago, in a landmark study, Morgenstern and others looked at the effect of regulations on four heavily polluting industries — pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills — between 1979 and 1991.
The researchers concluded that higher spending to comply with environment rules does not cause “a significant change” in industry employment. When jobs were lost, they were often made up elsewhere in the same industry. For every $1 million companies spent, as many as 11 / 2 net jobs were added to the economy.
The White House has tried to be particularly sensitive about the burden on businesses when rules are added. This year, Obama issued an executive order that agencies pay close attention to how rules might affect employment.
“This kind of sustained attention to jobs impact is new,” said Cass Sunstein, the White House’s regulatory chief. “I think it is very important to make sure regulations are compatible with our economic goals. But the idea of brandishing ‘job-killing regulations’ as a near-epithet is probably less nuanced than is ideal.”
Sunstein said he is sensitive to the possibility that when there is higher unemployment, there could be a higher risk that people working in regulated industries may have to wait longer to find new jobs.
Regardless, regulatory experts say that viewing a rule solely through the lens of whether it will cost jobs misses the point.
Noll, the Stanford professor, said the government could outlaw tractors to create $5-a-day jobs for people working in the fields, but “that would not be a legitimate social goal.”
“The notion that we should deregulate everything because we have a recession is completely wrongheaded,” he said. “Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated.
“The right question is: On balance, does our society benefit?”
Staff writer Steven Mufson in Washington contributed to this report.