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 NATIONAL
JOBS FOR ALL COALITION
UNCOMMON SENSE
12 © September 1996
Environmental
Regulation and Jobs:
Myth and Reality
by Eban Goodstein, Associate Professor
of Economics, Lewis and Clark College
"Eastern Coal Towns Wither in the Name of Cleaner Air"
The New York Times, A1,
February 15, 1996
"Squeezing the Textile Workers: Trade and Technology
Force a New Wave of Job Cuts" The New York Times,C1,
February 21, 1996
These two headlines, appearing within a week of each other last
winter, provide an interesting window into our deep-seated, national
myth of a jobs-environment trade-off. The first item, a front
page, lead story, detailed the
five year impact of the 1990 Clean Air Act amendments on Appalachian
communities, as electric companies switched to low sulfur western
coal to meet tougher air pollution standards. Item two appeared
in the business section, halfway down the page. The story examined
the impact of trade and technology on employment in the textile
industry over the last year. Care to guess the number of job losses
in each case?
In the textile industry, the number was an astounding 100,000
layoffs in a single year-- easily dwarfing even the AT&T downsizing
in its impact. For the coal industry, the number of layoffs was
hard to pinpoint. The reporter, Peter Kilborn, perhaps a bit worried
he was crafting a mountain out of a molehill, never said. But
if one read carefully, and did some math, it was possible to calculate
that at most, 1,000 jobs losses per year, over a multistate region,
could be attributed to regulation.
This is not to downplay the devastating impact that layoffs
have in communities--especially small resource-dependent communities.
But it does raise an interesting question: why did the Times feel
compelled to report truly small layoffs on the front page, while
burying the real news about job loss in the Business section?
I will come back to this question at the end of this article.
Between here and there I will try to dispel some myths about jobs
and the environment.
Stringent national environmental standards were first imposed
in the developed countries beginning in the early 1970’s.
Since then, economists have accumulated a substantial body of
research assessing the impacts of environmental regulation on
employment. Based on this evidence, there is an unusual degree
of consensus on three main points:
1. At the economy-wide level, there is simply no trade-off between
environmental protection and employment.
2. The number of workers laid off due primarily to environmental
regulations has been quite small.
3. Few firms relocate to poor countries primarily to take advantage
of lax environmental regulations.
Let us explore these points in a little more detail.
The consumers and producers of environmentally--damaging goods
impose costs, like dirty air or toxic waste, on other industries,
workers, or society as a whole. Environmental regulation shifts
these costs back to those creating
them. Getting a cleaner environment, therefore, usually raises
firm and consumer costs of those goods and services, thereby reducing
their consumption. But it is a mistake to confuse costs of environmental
protection with net job losses from environmental protection.
Environmental costs translate into environmental spending, which
also provides jobs. As I document in a recent report,1 the great
majority of studies which have examined this issue find that jobs
created in environmental and related sectors more than balance
jobs lost as a result of higher regulatory costs, leading to small
net employment gains economy-wide. Environmental regulations also
encourage firms to develop new technologies to offset costs, and
provide new opportunities for businesses and workers to produce
useful goods. Sometimes firms are so successful in developing
new methods that both their costs and pollution fall. One such
success is that of Dow Chemical. In response to regulations closing
its evaporation ponds for chemical wastes, Dow redesigned its
production process, saving $2 million per year on an initial investment
of $250 thousand.2
The absence of any trade-off is perhaps easiest to see by looking
at US economic growth in recent years. In 1995, in spite of spending
$160 billion per year on environmental protection, the US economy
was growing too fast from the Federal Reserve Bank’s point
of view. Too many people were employed in the United States, according
to the Bank, raising the specter of inflation. As a result, the
Federal Reserve hiked interest rates several times, in an attempt
to cool the economy down, and, in fact raise unemployment rates
towards the 6% level. Unemployment rates ultimately depend on
the health of the macroeconomy, which as of 1995, had not been
impaired by environmental regulation.
This point runs so counter to the conventional wisdom that it
is worth repeating: there is a solid research consensus in the
economics profession that at the economy-wide level, there is
simply no trade-off between jobs and the environment. However,
the knowledge that a national trade-off is non-existent will provide
little solace to a worker who has lost her job as a result of
environmental regulation. How big are the gross job losses?
In 1990, the United States Business Roundtable published a study
predicting the impact on employment of the Clean Air Act Amendments,
which were passed later that year.3 Their conclusion left "little
doubt that a minimum of two hundred thousand (plus) jobs will
quickly be lost, with plants closing in dozens of states. This
number could easily exceed one million jobs—and even two
million jobs—at the more extreme assumption about residual
risk." Because of concerns about widespread job loss, the
Act authorized retraining funds of $50 million per year for displaced
workers.
Four years later, a grand total of 2,363 workers had applied
for aid because they felt their jobs were affected by the Clean
Air Act. Virtually all of these were the coal miners visited by
The New York Times last winter. This anecdote suggests that fears
of shut downs and layoffs from regulation are dramatically overblown.
The data bear this hypothesis out.
Elsewhere, I have reviewed a number of US studies,4 which all
conclude that lay-offs in the manufacturing sector resulting from
environmental regulation have been quite small-- on the order
of one to three thousand jobs per year nationwide in the late
1970’s and 1980’s. Most recently, a US Department of
Labor survey, covering 57% of the manufacturing workforce, identified
an average of 4 plant closings and 648 workers laid off due to
environmental and safety regulation each year during the late
1980’s. This was less than one-tenth of one percent of all
major layoffs.
Local job environment trade-offs are most severe in the timber
and mining industries-- but even in the eastern coal-fields and
the logging communities of the Pacific Northwest, total job losses
from regulation have been in the low thousands. These cases take
on a high media profile because the jobs pay well, because re-employment
opportunities are limited for some (but not all) laid off rural
workers, and perhaps most importantly, because the industries
in question are facing larger scale layoffs due to automation,
import competition and/or a declining resource base.
Regulation has neither increased nation-wide unemployment rates,
nor led to large job losses in manufacturing. Critics nevertheless
charge it has had a more insidious impact on manufacturing employment,
by impairing the competitiveness of US firms, and encouraging
the widespread flight of new investment to "pollution havens"--countries
with a lax regulatory environment. However, a recent survey in
a prestigious journal examining these hypotheses found no evidence
to support them.5
The economic realities are clear: no trade-off at the economy-wide
level, very small local job losses in manufacturing, little capital
flight to pollution havens. Indeed, evidence is accumulating that
environmental investments have the potential to spark regional
economic development efforts.6 And yet the myth persists. In a
1990 poll, one third of the respondents believed that they personally
were somewhat or very likely to lose their job as a result of
environmental regulation.7
The myth persists because of the corporate world’s ability
to spin the media. Reporters uniformly report--often without comment--the
absurdly high job loss predictions that industry think tanks regularly
churn out. More profoundly, journalists like the Times’ Kilborn
are looking for someone to blame for rising income inequality,
corporate downsizing, and increasing middle class insecurity.
While the declining power of labor unions, increasing levels of
import competition, and the rapid pace of automation are genuine
suspects, environmental regulations are apparently a more comfortable
villain.
Notes:
1. Eban Goodstein, Jobs and the Environment: The Myth of
a National Trade-off. Economic Policy Institute: Washington,
DC 1994
2. Michael E. Porter and Claas van der Linde, "Toward a
New Conception of the Environment-Competitiveness Relationship,"
Journal of Economic Perspectives, Fall 1995, 97-118.
3. Robert Hahn and Wilbur Steger. 1990. An Analysis of Jobs
at Risk and Job Losses From the Proposed Clean Air Act Amendments.
Pittsburgh: CONSAD Research Corporation:. p. ES.15.
4. Goodstein, "Jobs and the Environment"
5. Adam B. Jaffe, Steven R. Peterson, Paul R. Portney and Robert
N. Stavins. 1995. "Environmental Regulation and the Competitiveness
of US Manufacturing: What Does the Evidence Tell Us?" Journal
of Economic Literature, 1995: 33-1, 132-63
6. Goodstein, "Jobs and the Environment: An Overview,"
Environmental Management, 20-3, May, 313.1996; Thomas Powers
(ed.), Economic Well-Being and Environmental Protection in
the Pacific Northwest: A Consensus Report By Pacific Northwest
Economists (Department of Economics, University of Montana:
Missoula , 1996.
7. Goodstein, Jobs and the Environment.
Reference:
Eban Goodstein, "Jobs or the Environment? No Trade-off,"Challenge,
January-February, 1995.
Editor: June Zaccone, Economics
(Emer.), Hofstra University
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