Environmental Regulations: Job Creators or Job Killers?

  • Susan Phillips

Jobs. How to create them, and what destroys them, often depends on point of view, and who is paying for a particular study. The competing information can be confusing to reporters, policy makers, and the general public. Environmentalists tout the job creation aspects of strict regulation, while industry often produces studies that show layoffs are imminent.
Today, the Institute for Policy Integrity at New York University School of Law, has come out with a paper that looks at the different economic models used for job analysis, and cautions against misuse. Here are some of their recommendations:

1. Job impact analysis is not an alternative to, or substitute for, cost-benefit analysis. Rather, employment effects should be incorporated into cost-benefit analysis on the basis of traditional economic principles.
2. The difference between short-term and long-term unemployment should be taken into account when determining the economic costs of layoffs.
3. The potential for regulations to positively and negatively affect workers should be recognized.
4. Economic models used to predict employment effects should be well suited to the type of regulatory effect being estimated (e.g., regional versus nationwide and multi-sector versus single industry).
5. Uncertainty surrounding model predictions should be acknowledged by analysts and policymakers, and all assumptions and modeling choices should be disclosed.

The report, entitled “The Regulatory Red Herring” highlights the limitations of jobs analysis.

Because overall employment responds to large, macroeconomic factors, individual environmental regulations will rarely have lasting effects on aggregate employment. Environmental regulations that do not affect marginal labor productivity in the general economy are more likely to influence only the geographic or sectoral distribution of employment opportunities, rather than national employment levels. Current employment models are better suited to measuring these effects than forecasting economy-wide consequences.

So next time you hear that “1.4 million job creation” from one side of the debate, and the “2 million job loss” from the other, take it with a grain of salt.