One more book I’ve added to my growing “must read” wish list, “Does Regulation Kill Jobs?” available at Univ. Penn Press. Just ordered my copy and anxiously awaiting its arrival. Tracy Mehan, Conservefewell colleague and former head of EPA’s Office of Water, offers his own thoughts over at ELI here: Does Regulation Kill Jobs. The editors lay the foundation: “Few public policy choices are more difficult than those involving the regulation of the private sector. Compliance can be expensive, perhaps leading to a loss in both jobs and productivity, but regulation can also generate important benefits, such as safer workplaces and products.” Does regulation kill jobs and, if so, should we care if, in the end, the earth is a safer cleaner place to inhabit? How clean is clean, and how many more regulations do we need to achieve our ultimate goal of cleaner and safer?
One of the most important jobs of any regulator is to make the most informed decision practicably speaking, based on imperfect and oft conflicting data. The crystal ball of regulating is never as crystal as one would like. Environmental regulations, particularly at the federal level, are often harangued for killing jobs. Is it a fair assessment, or an accurate one?
Like other agencies, EPA is required to conduct a benefit-cost analysis before promulgating any major rulemaking. For the most part, the agency does a decent job with the technical assistance of fastidious experts at the White House Office of Management and Budget (OMB), the 900 pound gorilla in any administration. And while the agency guidelines for BCA are tediously thorough and detailed, they omit one very important thing, job loss and creation. As Mehan notes in his review, “In the real world, regulators track job impacts. Yet, jobs are still excluded from BCA, the most important element in the process of rulemaking.” How can this be you ask? The answer is that BCA assumes full employment, i.e., jobs may be lost in one sector and businesses may be shutdown but those jobs are assumed to be offset and subsumed by the hiring of others elsewhere in the economy. That is, the shutting down of a company or the loss of one’s job is simply treated as statistical “noise” in the milieu of an ever shifting economic landscape.
According to Mehan,
It is becoming harder and harder for agencies, especially EPA, to ignore the ambient political environment. Since 2007 the term “job-killing regulation” underwent a 174-fold increase in usage in American newspapers from four per year to 700 in 2011 according to the Institute for Policy Integrity. And the agency has appeared next to “job-killing” in 701 recent news stories. Indeed, the political rhetoric has reached such a fever pitch that one contributor [of 22 academic contributors] to this volume argues for the monetization of employment effects and their inclusion in BCA, as a means of restoring political legitimacy to the regulatory process – even if it is not justified in most cases. It would bring salutary transparency to rulemaking. Despite the paucity of data showing significant employment effects from regulation, either positive or negative, the editors concede the plausibility of the argument given the size of the overall regulatory burden in the United States.
According to the editors,
The Office of Management and Budget has reported that the estimated annual costs imposed by major regulations adopted from October 2002 through 2012 totaled between $57 and $84 billion in 2001 dollars – hardly a trivial number in absolute terms.
[W]hen someone loses his or her job, there are costs – relocation, retraining, adverse health impacts, alcoholism, and . . . the loss of an average of $100,000 in wages over the course of the laid off worker’s lifetime. This is, in and of itself, a significant loss of human and social capital.
Why then don’t we include employment effects in BCA. The short answer is that it’s too complicated. According to Al McGartland, one of EPA’s top economists – a very good one I might add – “There is, of course, a simple defense of the traditional position. BCA generally assumes a full-employment economy, where labor is shifted toward producing cleaner air and water, meaning that labor is no longer available to produce other products, with no overall net change in jobs.” McGartland continues, “Providing clear and appropriate social welfare estimates of employment impacts becomes even more complicated given the need to take into account general economic conditions at the time of the analysis, including modeling open economy dynamics. Moreover, economists currently lack the models and data to quantify these impacts well for specific regulations.” (emphasis added) Strikes me that when the nation’s economy is sputtering that prudent decision-making and good governance would necessarily take into consideration “general economic conditions.” And, in fact, President Obama did just that in 2011 when he asked EPA to withdraw a new ozone air quality standard due to the wobbly economy.
Seems like a very worthy discussion. Whether or not we ultimately decide to revamp BCA, some smart folks like David Schoenbrod have long argued for better and more cost effective approaches and tools to cleaning our environment.