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Impacts of Regulations on Employment – Examining EPA’s Oft-Repeated Claims that Regulations Create Jobs

Tuesday, February 26, 2013 - 7:00pm

OVERVIEW

Over the last four years, the U.S. Environmental Protection Agency (EPA) has often claimed that its new major, economically significant regulations create jobs.  As industries have announced job layoffs due to the newly issued regulations and the claims that job creation continued, it became necessary to undertake a study to understand how EPA reached its conclusions as well as the soundness of its findings that its regulations create jobs.  To better understand the employment impacts of environmental regulations, the Chamber in 2012 commissioned the economic research firm NERA to undertake a study to review and assess EPA’s methods for estimating employment impacts related to air quality regulations.

The Impact of Regulations on Employment

The impact of regulations on jobs has been debated in Congress for more than 45 years.  The earliest discussion of the impact of regulations on jobs is found during the congressional debate over the Air Quality Act of 1967.  As part of the debate, Congress mandated a comprehensive study of the economic impacts of air quality standards on the nation’s industries and communities.  A decade later, Congress mandated that the EPA administrator study the potential dislocation of employees due to the implementation of environmental laws.  This mandate was codified by Congress in Section 321(a) of the Clean Air Act, which requires EPA to conduct continuing evaluations of potential loss and shifts in employment that may result from the implementation and enforcement of the Clean Air Act.  Unfortunately, EPA has ignored this congressional mandate, thus depriving Congress of a significant body of data that would shed light on the impact of regulations on jobs and employment. 

In 2001, Justice Scalia, writing for a near unanimous U.S. Supreme Court in Whitman v. American Trucking Associations, clearly analyzed the regulations versus employment debate:

[T]he economic cost of implementing a very stringent standard might produce health losses sufficient to offset the health gains achieved in cleaning the air – for example, by closing down whole industries and thereby impoverishing the workers and consumers dependent upon those industries.  That is unquestionably true, and Congress was unquestionably aware of it.  Thus, Congress had commissioned in the Air Quality Act of 1967 (1967 Act) ‘a detailed estimate of the cost of carrying out the provisions of this Act; a comprehensive study of the economic impact of air quality standards on the Nation’s industries, communities and other contributing sources of pollution.’  Sec.2, 81 Stat. 505.  The 1970 Congress, armed with the results of this study, see The Cost of Clean Air, S. Doc. No. 91 – 40 (1969) not only anticipated compliance costs could injure the public health, but provided for that precise exigency. 1

Subsequently, when EPA issued a large number of regulations in 2009, six U.S. senators wrote to EPA requesting the results of its Section 321(a) continuing evaluation of potential loss or shifts of employment that would result from those new regulations.  On October 26, 2009, EPA responded to the six senators stating “EPA has not interpreted CAA Section 321 to require EPA to conduct employment investigations in taking regulatory actions.”

Therefore, an inquiry that started 45 years ago when Congress sought to understand the employment effects of regulations is still unresolved.  Congress has been left without the continuing evaluation of job loss and shifts in employment due to regulations.  The study is intended to review and assess EPA’s methods for evaluating employment impacts from new air quality regulations.

Summary Results of the Study

NERA found that EPA discussed the employment impacts of proposed air quality regulations in only 11 of the 48 rulemakings over the 1995 through 2010 period.  After 2010 (since the issuance of Executive Order 13563), EPA discussed employment impacts in 7 of 9 rulemakings.  NERA reviewed each regulatory impact analysis to determine the economic methodologies used and evaluated their adequacy. 

The study reveals striking omissions and inconsistencies in EPA’s analyses.  While the study found that many recent EPA regulatory analyses claimed job-creating net benefits for new air quality rules, NERA found that the approach on which EPA based such optimistic forecasts was flawed in several ways:

  • EPA’s analyses use a jobs impact formula that relies on aggregated data from four individual industries that do not mirror the industries targeted by recent EPA rules and which was derived from 1980s data that are no longer relevant for assessing current impacts.
  • The methods used by EPA considered only part of the potential overall employment impacts.
  • EPA’s partial analysis methods ignored the effects of regulatory compliance costs on prices.

NERA concluded that the correct approach for assessment of the overall economic and employment impacts of rules with large economy wide costs is to model the impact of regulation compliance cost through a whole-economy model.  This approach takes into account the cascading effects of a regulatory change across interconnected industries and markets nationwide.  NERA found that EPA possesses the capability to perform such whole-economy modeling and had actually done so in connection with two rulemakings in 2005.  EPA’s failure to use the more comprehensive economic analysis tool in its rulemakings partially accounts for the agency’s consistently optimistic estimates of employment impacts in those rulemakings.

NERA applied the whole-economy approach to estimate the impact of EPA’s 2011 Utility Mercury and Air Toxics Standard (MATS).  EPA’s partial-economy analysis showed that regulation would create 46,000 temporary construction jobs and 8,000 net new permanent jobs.  By contrast, NERA’s whole-economy analysis estimated that the MATS rule would have a negative impact on worker incomes equivalent to 180,000 to 215,000 lost jobs in 2015, and the negative worker income impacts would persist at the level of 50,000 to 85,000 such “job-equivalents” annually thereafter.

NERA also analyzed three other EPA rules using the whole-economy model and found similar results of adverse employment effects:

  • EPA’s Cross State Air Pollution rule would have an impact on worker incomes equivalent to the annual loss of 34,000 jobs from 2013 through 2037, compared with EPA’s claim of 700 jobs per year gained.
  • EPA’s Industrial Boiler Maximum Achievable Technology (MACT) rule would have a negative impact on worker incomes equivalent to 28,000 jobs per year on average from 2013 through 2037, compared to EPA’s claim of 2,200 per year gained.
  • EPA’s planned ozone National Ambient Air Quality Standard (NAAQS) would reduce worker incomes by the equivalent of 609,000 jobs annually on average from 2013 through 2037. EPA has not yet published an employment impact for the ozone NAAQS.

The details of NERA’s analyses are contained in the report and appended case study summaries.

The Impacts of Regulations on Displaced Workers

Regulators typically assume that workers who are displaced from long-held jobs by regulations will find new work quickly.  In reality, unemployment often has serious, continuing impacts on workers and their families.  In addition to loss of income, many workers never return to full-time work, and those who do return to full-time work often earn less than previous wage levels long after reemployment.  The Bureau of Labor Statistics’ Displaced Worker Survey in January 2012 found that among the 6.1 million workers who lost long-tenured jobs between 2009 and 2011, 44% were still unemployed up to three years later.  Of those who found full-time reemployment, 54% were earning less than their prior jobs had paid, and a full one-third were earning at least 20% less.    

Conclusion

The past 40 years have seen significant declines in the copper mining, steel, textile, furniture, coal mining and forest products industries.  While a variety of factors have played a role in the decline of these industries, a common thread running through all of them has been the role of regulatory mandates and costs.  Even when regulations are not the primary cause of change, regulations imposed on an industry can provide the tipping point that leads to plant closures and adverse economic impacts that otherwise might have been avoided or cushioned over time.  While EPA continues to issue regulations to protect the environment, it must also be forthcoming and provide Congress and the American people with methodologically complete estimates of the impact its regulations may have on jobs and communities.

1 Whitman v. American Trucking Associations, 531 U.S. 457 (2001) at 466.