Killing Jobs or Growing Jobs?

Steven Pearlstein point out in his Washington Post column that the words “job-killing” are used inappropriately in most political contexts. He argues that these words “reflect[] the sort of economic fundamentalism better suited to Afghan politics than American. Rather than contributing to the political dialogue, [they are] a substitute for serious discussion.”

Pearlstein’s basic argument is that the words are being used as name-calling rather than in good faith to describe policies that really would increase unemployment.

This problem of the rhetoric on jobs being out of sync with reality is even more severe for the environment. Environmental regulations are repeatedly blamed for cutting jobs. In this case, the problem is that there is no evidence to support the claim that environmental regulations have had a negative impact on employment, either in general or for any particular regulation that I have looked at in a 35-year career. However, there is evidence that in fact, stronger environmental regulation consistently leads to greater employment.

Environmental regulations produce jobs in several ways. First, they encourage technological innovation and competition on the best ways to meet the regulation. In most cases, the polluting processes were not very economically efficient in the first place, and the need to do something different to comply with the law promotes new thought on how to increase productivity and consequent new investment. Investments in enhanced productivity preserve or create jobs. Second, controlling pollution itself produces new jobs in manufacturing and operating the control equipment, and in improvements in operations and maintenance in the facilities that are required to keep pollution low. Third, environmental degradation has its costs, and these often include damage to health, which reduces people’s ability to work effectively. Reducing these costs allows those that would have been afflicted with them to earn more and to spend the money they are saving on other purchases, all of which entail creating or maintaining jobs.

For energy efficiency regulations, such as improved fuel economy for cars or the requirements that light bulbs become more efficient, the regulation results in lower fuel and utility costs. Fuel savings reduce imports, so they do not cost American jobs, and utility energy production is capital intensive and yields very few jobs. In contrast, the efficiency technologies create jobs, and usually local jobs, and the reduction in energy costs leaves consumers and businesses with more money to spend on other pursuits, which will create jobs as well.

A pitfall in looking at jobs as a serious issue rather than as a rhetorical weapon is that in a dynamic market economy, any kind of change, even ordinary economic growth, both creates and destroys jobs as competitive forces work. The only institutions that maintain the same jobs for long periods of time are bureaucracies. The only economies that preserved jobs as a matter of course were the centrally planned economies.

So when the American economy changes, whether due to a regulation or to a new invention being commercialized, or a new company being established, new jobs are created but other jobs may be lost. The important issue is not whether or not there are job losses somewhere in the economy, rather it is whether the gains in jobs outweigh the losses. Another issue is the quality and pay of the jobs that are created compared to those that are lost.

We can see this in the analysis of the effects of the light bulb efficiency standards, which are only now beginning to be felt. While one obsolete light bulb plant was closed (in a business decision not even related to the standards), others with higher employment were being opened to produce standards-compliant product. In my blog, I noted that a competitor of the manufacturer who was closing the plant was creating more new jobs at a modernized plant than were eliminated when the obsolete plant closed; subsequently the first manufacturer responded to the blog by noting that they too were creating more new jobs at high tech facilities that were created in anticipation of complying with the regulation.

Employment is too important of a problem to be trivialized by loosely tossing around words like “job-killing”. Serious studies have shown that environmental policies like promoting energy efficiency can produce, on net, millions of jobs. Regulation is one of the ways that this happens. People who pop off the expression “job-killing” are, if their words are believed, the ones who will really be killing job growth.