Jobs and Environmental Regulation
Drawing from both our own recent work and the broader economic literature, we attempt to identify what we know and what we don’t know about the politically important question on the relationship between environmental regulations and jobs.
Abstract
Political debates around environmental regulation often center on the effect of policy on jobs. Opponents decry the “job-killing” Environmental Protection Agency (EPA) and proponents point to “green” jobs as a positive policy outcome. Beyond the political debates, Congress requires EPA to evaluate “potential losses or shifts of employment” that regulations under the Clean Air Act may cause. Yet there is a sharp disconnect between the political importance of the jobs question and the general skepticism in the academic literature about the importance of job effects for the costs and benefits of environmental regulation (and correspondingly limited research on those job effects).
In this paper, we discuss how the existing research on jobs and environmental regulations often falls short in evaluating these questions and consider recent work that has attempted to address these problems. We provide an intuitive discussion of key questions for how job effects should enter into economic analysis of regulations. And, using an economic model from Hafstead, Williams, and Chen (2018), we evaluate a range of environmental regulations in both the short and long run to develop a set of key stylized facts related to jobs and environmental regulations as well as identify the key questions that current models can’t yet answer well.
Key Findings
- One should be very cautious about relying on empirical job estimates or simulation modeling of job effects when making policy decisions.
- The effects of environmental policy on overall employment are likely to be small, especially in the long run.
- Environmental policy can cause substantial job reallocation: fewer jobs in some industries and more jobs in others.
- For a given reduction in emissions, emissions pricing has a lower overall cost and leads to higher long-run employment than intensity standards (e.g., clean energy or renewable portfolio standards).
- The scope and scale of environmental policy is an important determinant of short-term labor market effects (on unemployment, etc.) but is less important for long-term effects.
- Preannouncements and phase-ins can substantially reduce short-term labor market effects, by allowing more time for the necessary reallocation to occur.
