In the past three years, the Environmental Protection Agency has been proposing an array of new rules on air pollution in the United States. In return, Congress has typically focused on what impact those regulations will have on jobs. In the first month of 2011, House Republicans held nearly two dozen hearings on the links between government regulations and unemployment. That’s understandable, given that the recovery’s still stumbling. But the actual, hard estimates of job impacts have been all over the place.
Someone needs to bring a little order to this chaos. And a new paper (pdf) by the Institute for Policy Integrity tries to do just that. The authors, Michael Livermore, Elizabeth Piennar, and Jason Schwartz, make two key points. First, most of the concrete estimates of job losses and gains around environmental rules are wildly misused — people basically just tout whatever study supports their pre-existing beliefs. And, second, while job impacts are important, they should be looked at in the broader context of the costs and benefits of new regulations. Job losses or gains, the authors note, “should not serve as a trump card.”
The authors have a detailed proposal for how regulators should think about the job impacts of new rules on pollution. It involves sifting through questions like: How many workers will be laid off? Will those workers be able to find new jobs easily? If there’s a recession going on, is there a risk that those workers could be laid off for a long period of time? (After all, economists have found that long-term unemployment can be extremely damaging to workers.) Will some regions be hit harder than others? And how many other workers will get hired to, say, manufacture and install the new pollution equipment?
Surprisingly, most independent modeling of environmental rules rarely consider all of these factors. “Currently,” the authors note, “most models are best able to examine only part of the picture — like layoffs or hiring in a particular sector — and cannot accurately model the dynamic, economy-wide effects of a policy on aggregate employment levels.”
At the moment, the authors note, the EPA is only just beginning to conduct job impact analyses in its recent pollution regulations — it did this for its recent rule (pdf) on mercury emissions from power plants — but this is still a relatively new venture.
Moreover, Livermore and his colleagues argue, these job-impact analyses still need to get folded into a much broader cost-benefit analysis of the environmental rule in question. A regulation that causes layoffs does inflict real, concrete costs. But most of the EPA’s rules have costs and benefits. The agency’s mercury rule for power plants, for instance, is expected to produce $37 billion to $90 billion in annual health benefits by 2016, largely by avoiding premature deaths caused by lung-damaging particulate pollution. “Job impact analysis,” the authors write, “is not an alternative to, or substitute for, cost-benefit analysis.”
In any case, it’s worth being cautious anytime a politician or lobbying group confidently declares that a new regulation will annihilate thousands of jobs (or create thousands of jobs, for that matter). Odds are, those numbers are giving a woefully incomplete picture of the rule in question.