With great fanfare, President-elect Donald Trump announced that he had saved 1,100 jobs in Indiana that were due to be shipped to Mexico by Carrier, a unit of United Technologies. The deal came after the state of Indiana (where Vice President-elect Mike Pence is still governor) promised $7 million in incentives.
But there are two aspects of Trump’s speech that were rather fishy — the number of jobs he claimed to have saved and the effect of regulations that he suggested had caused Carrier to leave. Let’s dig through the numbers.
Trump claimed he saved 1,100 jobs. That’s false.
Trump’s deal would keep 800 workers in Indiana, or about 38 percent of the total who were due to leave the state, according to a spokesman for United Technologies. These jobs were focused on making gas furnaces. About 600 jobs — focused on making fan coils — will still go to Mexico. Meanwhile, the 700 UTEC workers will also lose their jobs to Mexico, though workers at the plant — which makes microprocessor-based controls for heating, ventilation, air conditioning and refrigeration units — had gotten their hopes up after Trump’s announcement that he had struck a deal with United Technologies.
(Update, Dec. 6: Union officials say the number of jobs saved shrank to 730, once the official paperwork was submitted. The number of fan coil jobs going to Mexico is 553. Counting the UTEC jobs going to Mexico, Trump saved 37 percent of the jobs.)
(Update, Dec. 8: Greg Hayes, chief executive of United Technologies, told CNN that even more jobs eventually would be lost through automation. “We’re going to…automate to drive the cost down so that we can continue to be competitive,” he said. “What that ultimately means is there will be fewer jobs.”)
In claiming 1,100 jobs, Trump is including 300 jobs that never were going to Mexico in the first place. He also is conveniently forgetting about the 700 jobs from UTEC, though both announcements were made at the same time. Trump tweeted Sunday that he will slap a 35 percent tariff on any company that ships jobs to another country, so it’s unclear whether United Technologies snookered Trump or Trump snookered United Technologies.
Trump asserted that in the past six years, 260 new federal regulations have passed, including 53 that directly affected the Carrier plant. This struck us as a mysterious figure, and, of course, Trump officials did not respond to repeated requests for an explanation. So we poked around and discovered that no one really wants to claim credit for the math.
It turns out a similar figure appears to have first appeared in a letter that James Schellinger, the head of the Indiana Economic Development Corp., wrote to Sen. Joe Donnelly (D-Ind.) in March. Donnelly had said that he had been told Carrier was moving to Mexico because wages were so much lower: “It’s real clear what this is about. This is about Carrier chasing Mexican wages at $3 an hour, that’s what this is about.”
Schellinger, quoting Robert McDonough, president and chief executive of UTC Climate, Controls and Security, in turn blamed federal regulations. The letter said:
Mr. McDonough noted that the federal government has passed 260 new federal regulations since 2013, and that 53 of those have a direct and significant impact on the manufacturers of residential heating and cooling systems and equipment. With these stringent regulations and the ever-increasing cost of commodities, including copper, aluminum, etc., the company must make changes in the only aspect that they control — manufacturing and labor costs.
Schellinger noted that he told McDonough that the company would still have to abide by federal regulations even if equipment was made in another country, andMcDonough responded that was why the company had to reduce labor costs.
So, first of all, Trump is wrong to say the 53 regulations affect the plant; they supposedly applied to manufacturers of residential heating and cooling systems and equipment, not just the Indianapolis plant, which makes gas furnaces and fan coils. (He also got the number of years wrong, as it is supposedly three years, not six years, of regulations.)
But United Technologies said this was not its number. A spokesman said it came from the Air-Conditioning, Heating and Refrigeration Institute (AHRI), a trade group.
Francis J. Dietz, a spokesman for AHRI, said the number of new federal regulations — 260 — did not come from the trade group. But the group had once produced a chart indicating that the Department of Energy had issued 52 final or proposed major regulations between 2009 and 2016. That, of course, is a six-year figure, not three years as indicated by McDonough.
Not all of these rules appear to directly relate to the heating, ventilation and air conditioning (HVAC) or water-heater industries. A 2015 analysis by the American Action Forum, critical of the DOE’s energy-efficiency rules, counted 22 major rules affecting the industry that were approved between 2009 and 2014, including eight in 2014. Eleven were said to be on track for completion through 2016, for a total of 33.
Regular readers know that we have warned against making broad assumptions about the costs (or benefits) of regulations. Every year, the Office of Management and Budget issues a congressionally mandated report on the effect of major regulations — and finds the benefits greatly outweigh the costs, generally by a factor of 10 to 1.
Indeed, a lot of the regulations affecting the air conditioning and furnace business are drafted by DOE, to promote energy efficiency, and the Environmental Protection Agency, to stem pollution. Those regulations may have upfront costs but huge long-term benefits to the environment.
Moreover, thousands of regulations are issued every year. The Congressional Research Service says nearly 11,000 regulations were issued in just 2013, 2014 and 2015, presumably the three years referenced by McDonough.
However, CRS says 238 “major rules” were published in those three years, which at least is close to the 260 figure. But if you are going to be consistent, apples to apples, and keep the calculations to the three-year period of 2013-2015, there were 15 major rules issued by DOE that affected the HVAC and water-heater industry, out of 238 major rules — not 53 out of 260.
(Dietz ultimately produced a list of 53 DOE regulations and 7 EPA regulations that he said had impacted the industry between 2009 and 2016, though he acknowledged not all were considered “major” rules.)
But, again, just because a regulation is listed as major doesn’t mean it is costly.
The federal government is required to identify regulations that could have an economic effect amounting to more than $100 million, but people frequently misunderstand what that means. It does not necessarily mean $100 million in costs; in fact, it can also mean more than $100 million in benefits.
CRS made this clear when it examined the 100 major regulatory rules issued in 2010. It found that more than a third of the 100 rules were deemed “major” because they involved the transfer of federal funds to recipients (such as grants, food stamps or crop payments). In most cases, this meant more money in people’s pockets, not costs to businesses.
Other rules were labeled major because they triggered economic activity by consumers; these all had to do with hunting seasons and bag limits for certain types of migratory birds. And there were rules that established new fees (such as increased costs for passports) to fund government operations.
Finally, 39 of the 100 rules were expected to have either $100 million in annual compliance costs, $100 million in annual benefits, or both. In some cases, the ranges were so large that it was difficult to conclude whether the result was a positive or negative one. But in 14 cases, the lowest estimate of the benefits exceeded the highest estimate of the costs.
The American Action Forum analysis said that on an annual basis, all DOE rule-makings (proposed and final) from the agency from 2007 to 2015 have imposed more than $9.5 billion in economic costs, compared with generating an estimated $32 billion in benefits. The report questioned a number of DOE’s assumptions in calculating the benefits and noted that many of the costs will be borne directly by the consumer (such as an $83 increase in a refrigerator or $464 more for a water heater), who may or may not own the item long enough to get back the upfront cost through lower energy bills.
In any case, Trump’s numbers appear to have questionable provenance. No one will take credit for producing the figure of 260 regulations over three years, while the number directly affecting the plant simply does not add up to 53.
The Pinocchio Test
Trump’s numbers concerning the Carrier plant yet again demonstrate how sloppy he is with the facts. United Technologies is keeping only 800 out of 2,100 jobs that were heading to Mexico, yet in the interest of winning favorable headlines, Trump is willing to exaggerate the number of jobs saved and play down the number of jobs lost.
Trump’s claims about the regulations affecting the plant are equally dubious. No one can explain where the number of regulations comes from, or which ones actually affect the plant. There is certainly a reasonable argument one can make about the effect of DOE’s energy-efficiency regulations on the HVAC industry, but that case is obscured if a politician loosely uses figures that cannot be verified.
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