Does Government Regulation Really Kill Jobs? Economists Say
Overall Effect Minimal
Washington Post
13 November 2011
By Jia Lynn Yang
Beverly, Ohio — The Muskingum River coal-fired power plant in Ohio
is nearing the end of its life. AEP, one of the country’s biggest
coal-based utilities, says it will cut 159 jobs when it shuts the
decades-old plant in three years — sooner than it would like —
because of new rules from the Environmental Protection Agency.
About an hour’s drive north, the life of another power plant is
just beginning. In Dresden, Ohio, AEP has hired hundreds to build
a natural-gas-fueled plant that will employ 25 people when it
starts running early next year — and that will emit far fewer
pollutants.
The two plants tell a complex story of what happens when
regulations written in Washington ripple through the real economy.
Some jobs are lost. Others are created. In the end, say economists
who have studied this question, the overall impact on employment
is minimal.
“If you’re a coal miner in West Virginia, it’s not a great comfort
that a bunch of guys in Texas are employed doing natural gas,”
said Roger Noll, an economics professor at Stanford and
co-director of the university’s program on regulatory policy.
“Some people identify with the beneficiaries, others identify with
those who bear the cost, and no amount of argument is ever going
to change their minds.”
The arguing has lately turned into a brawl. In the face of the
country’s unemployment crisis, many politicians have portrayed
regulations as the economy’s primary villain.
House Republicans have identified 10 “job-destroying regulations”
they want to repeal, and a steady stream of bills have been
proposed to block environmental rules governing everything from
cement plants to boilers. GOP candidate Mitt Romney has vowed that
on his first day as president, he will “tear down the vast edifice
of regulations the Obama administration has imposed on the
economy.” The White House, meanwhile, says it is making a
determined effort to assess how rules are affecting jobs.
The critique of regulations fits into a broader conservative
narrative about government overreach. But it also comes after a
string of disasters in recent years that were tied to government
regulators falling short, including the financial crisis of 2008,
the BP oil spill and the West Virginia mining accident last year.
Data from the Bureau of Labor Statistics show that very few
layoffs are caused principally by tougher rules.
Whenever a firm lays off workers, the bureau asks executives the
biggest reason for the job cuts.
In 2010, 0.3 percent of the people who lost their jobs in layoffs
were let go because of “government regulations/intervention.” By
comparison, 25 percent were laid off because of a drop in business
demand.
Limits on emissions
Set along a bucolic stretch of road two hours east of Columbus,
the smokestacks of the Muskingum River plant rise suddenly from
the landscape like skyscrapers. Beside the plant, huge mounds of
coal wait to be lifted by a conveyor belt, then dumped into
machines to be pulverized into powder before being burned.
Last year, the plant emitted 98,515 tons of sulfur dioxide, the
third-highest total in the country, according to data collected by
the EPA.
The agency is tightening limits on sulfur dioxide emissions under
the Cross-State Air Pollution Rule. To comply, many older coal
plants must install enormous devices called scrubbers, which
remove sulfur dioxide from the exhaust emitted by the smokestacks.
Built more than 50 years ago, the Muskingum River plant has no
scrubbers, and the company says it cannot add them in time to meet
the EPA’s deadlines.
AEP chief executive Mike Morris said that retrofitting plants
would add jobs but that he needs more time from the EPA.
“We have to hire plumbers, electricians, painters, folks who do
that kind of work when you retrofit a plant,” Morris said. “Jobs
are created in the process — no question about that.”
Another AEP coal plant in nearby Conesville required more than
1,000 temporary workers to build a scrubber for one of its units.
The plant then added 40 full-time employees to monitor the
scrubber, which doubled the footprint of the unit. The device
requires so much machinery it has its own control room.
Ralph Izzo, chief executive of the New Jersey utility PSE&G,
said installing scrubbers at two of his company’s coal plants
created 1,600 jobs for two years, plus 24 permanent ones.
Critics from groups such as the Environmental Defense Fund say
that AEP has had plenty of time to comply with the rules, which
have been years in the making, and that some of these coal plants
are too old and too dirty to continue operating.
“Everyone has this idea that the EPA could shut a plant down,”
said Rachael Belz, organizer of the coal program at Ohio Citizen
Action. “But these decisions are being made by AEP, or Duke
Energy. These are business decisions.”
Some of the coal plants are approaching the end of their life
spans anyway. And the price of natural gas has plummeted as people
have discovered how to unlock gas from shale rock.
“The coal-to-gas switch is already on for pure economic reasons,”
said Mark Fulton, global head of climate-change investment
research at Deutsche Bank.
He recently co-authored a study concluding that, by 2020, the
shift to natural gas and renewables will generate a net 500,000
jobs in the United States.
Standing on the construction site of AEP’s natural gas plant in
Dresden, Ron Borton spoke excitedly about the future.
“I’m making the shift from coal to gas,” said Borton, who spent 20
years working at the Conesville coal plant before becoming
operations and maintenance superintendent of the Dresden project
two years ago.
“I looked at this as an opportunity to learn something new,” he
said. “You don’t hear many people complaining about a gas plant.”
But the Dresden plant will require fewer workers. There will be
just 25 full-time AEP employees, compared with the 159 at
Muskingum.
“Our level of automation is really heavy,” Borton said. “One guy
could run this plant.”
Attacks on regulation
There is no question that a regulation can add costs for
businesses and sap the resources and time of busy executives.
Companies have long complained that spending money following rules
means there’s less left over to invest in research or expand their
businesses.
But recently, more in Washington are making another case. They
argue that getting rid of regulations will directly create jobs.
President Obama has heard versions of this argument from powerful
business lobbying groups, individual chief executives — including
members of his own jobs council — and his rivals on the campaign
trial.
Economists who have studied the matter say that there is little
evidence that regulations cause massive job loss in the economy,
and that rolling them back would not lead to a boom in job
creation.
Firms sometimes hire workers to help them comply with new rules.
In some cases, more heavily regulated businesses such as coal
shrink, giving an opportunity for cleaner industries such as
natural gas to grow.
“Based on the available literature, there’s not much evidence that
EPA regulations are causing major job losses or major job gains,”
said Richard Morgenstern, a senior fellow at the nonpartisan think
tank Resources for the Future who worked at the EPA starting under
the Reagan administration and continuing into President Bill
Clinton’s first term.
A decade ago, in a landmark study, Morgenstern and others looked
at the effect of regulations on four heavily polluting industries
— pulp and paper mills, plastic manufacturers, petroleum refiners,
and iron and steel mills — between 1979 and 1991.
The researchers concluded that higher spending to comply with
environment rules does not cause “a significant change” in
industry employment. When jobs were lost, they were often made up
elsewhere in the same industry.
For every $1 million companies spent, as many as 11 / 2 net jobs
were added to the economy.
The White House has tried to be particularly sensitive about the
burden on businesses when rules are added.
This year, Obama issued an executive order that agencies pay close
attention to how rules might affect employment.
“This kind of sustained attention to jobs impact is new,” said
Cass Sunstein, the White House’s regulatory chief. “I think it is
very important to make sure regulations are compatible with our
economic goals. But the idea of brandishing ‘job-killing
regulations’ as a near-epithet is probably less nuanced than is
ideal.”
Sunstein said he is sensitive to the possibility that when there
is higher unemployment, there could be a higher risk that people
working in regulated industries may have to wait longer to find
new jobs.
Regardless, regulatory experts say that viewing a rule solely
through the lens of whether it will cost jobs misses the point.
Noll, the Stanford professor, said the government could outlaw
tractors to create $5-a-day jobs for people working in the fields,
but “that would not be a legitimate social goal.”
“The notion that we should deregulate everything because we have a
recession is completely wrongheaded,” he said. “Whether a
regulation is a good or bad idea is not a function of employment
in the industry being regulated.
“The right question is: On balance, does our society benefit?”
Staff writer Steven Mufson in Washington contributed to this
report.