UNCOMMON SENSE 12 © September 1996
by Eban Goodstein, Associate Professor of Economics, Lewis and Clark College
“Eastern Coal Towns Wither in the Name of Cleaner Air” The New York Times, A1, February 15, 1996
“Squeezing the Textile Workers: Trade and Technology Force a New Wave of Job Cuts” The New York Times,C1, February 21, 1996
These two headlines, appearing within a week of each other last winter, provide an interesting window into our deep-seated, national myth of a jobs-environment trade-off. The first item, a front page, lead story, detailed the
five year impact of the 1990 Clean Air Act amendments on Appalachian communities, as electric companies switched to low sulfur western coal to meet tougher air pollution standards. Item two appeared in the business section, halfway down the page. The story examined the impact of trade and technology on employment in the textile industry over the last year. Care to guess the number of job losses in each case?
In the textile industry, the number was an astounding 100,000 layoffs in a single year– easily dwarfing even the AT&T downsizing in its impact. For the coal industry, the number of layoffs was hard to pinpoint. The reporter, Peter Kilborn, perhaps a bit worried he was crafting a mountain out of a molehill, never said. But if one read carefully, and did some math, it was possible to calculate that at most, 1,000 jobs losses per year, over a multistate region, could be attributed to regulation.
This is not to downplay the devastating impact that layoffs have in communities–especially small resource-dependent communities. But it does raise an interesting question: why did the Times feel compelled to report truly small layoffs on the front page, while burying the real news about job loss in the Business section? I will come back to this question at the end of this article. Between here and there I will try to dispel some myths about jobs and the environment.
Stringent national environmental standards were first imposed in the developed countries beginning in the early 1970’s. Since then, economists have accumulated a substantial body of research assessing the impacts of environmental regulation on employment. Based on this evidence, there is an unusual degree of consensus on three main points:
1. At the economy-wide level, there is simply no trade-off between environmental protection and employment.
2. The number of workers laid off due primarily to environmental regulations has been quite small.
3. Few firms relocate to poor countries primarily to take advantage of lax environmental regulations.
Let us explore these points in a little more detail.
The consumers and producers of environmentally–damaging goods impose costs, like dirty air or toxic waste, on other industries, workers, or society as a whole. Environmental regulation shifts these costs back to those creating
them. Getting a cleaner environment, therefore, usually raises firm and consumer costs of those goods and services, thereby reducing their consumption. But it is a mistake to confuse costs of environmental protection with net job losses from environmental protection. Environmental costs translate into environmental spending, which also provides jobs. As I document in a recent report,1 the great majority of studies which have examined this issue find that jobs created in environmental and related sectors more than balance jobs lost as a result of higher regulatory costs, leading to small net employment gains economy-wide. Environmental regulations also encourage firms to develop new technologies to offset costs, and provide new opportunities for businesses and workers to produce useful goods. Sometimes firms are so successful in developing new methods that both their costs and pollution fall. One such success is that of Dow Chemical. In response to regulations closing its evaporation ponds for chemical wastes, Dow redesigned its production process, saving $2 million per year on an initial investment of $250 thousand.2
The absence of any trade-off is perhaps easiest to see by looking at US economic growth in recent years. In 1995, in spite of spending $160 billion per year on environmental protection, the US economy was growing too fast from the Federal Reserve Bank’s point of view. Too many people were employed in the United States, according to the Bank, raising the specter of inflation. As a result, the Federal Reserve hiked interest rates several times, in an attempt to cool the economy down, and, in fact raise unemployment rates towards the 6% level. Unemployment rates ultimately depend on the health of the macroeconomy, which as of 1995, had not been impaired by environmental regulation.
This point runs so counter to the conventional wisdom that it is worth repeating: there is a solid research consensus in the economics profession that at the economy-wide level, there is simply no trade-off between jobs and the environment. However, the knowledge that a national trade-off is non-existent will provide little solace to a worker who has lost her job as a result of environmental regulation. How big are the gross job losses?
In 1990, the United States Business Roundtable published a study predicting the impact on employment of the Clean Air Act Amendments, which were passed later that year.3 Their conclusion left “little doubt that a minimum of two hundred thousand (plus) jobs will quickly be lost, with plants closing in dozens of states. This number could easily exceed one million jobs—and even two million jobs—at the more extreme assumption about residual risk.” Because of concerns about widespread job loss, the Act authorized retraining funds of $50 million per year for displaced workers.
Four years later, a grand total of 2,363 workers had applied for aid because they felt their jobs were affected by the Clean Air Act. Virtually all of these were the coal miners visited by The New York Times last winter. This anecdote suggests that fears of shut downs and layoffs from regulation are dramatically overblown. The data bear this hypothesis out.
Elsewhere, I have reviewed a number of US studies,4 which all conclude that lay-offs in the manufacturing sector resulting from environmental regulation have been quite small– on the order of one to three thousand jobs per year nationwide in the late 1970’s and 1980’s. Most recently, a US Department of Labor survey, covering 57% of the manufacturing workforce, identified an average of 4 plant closings and 648 workers laid off due to environmental and safety regulation each year during the late 1980’s. This was less than one-tenth of one percent of all major layoffs.
Local job environment trade-offs are most severe in the timber and mining industries– but even in the eastern coal-fields and the logging communities of the Pacific Northwest, total job losses from regulation have been in the low thousands. These cases take on a high media profile because the jobs pay well, because re-employment opportunities are limited for some (but not all) laid off rural workers, and perhaps most importantly, because the industries in question are facing larger scale layoffs due to automation, import competition and/or a declining resource base.
Regulation has neither increased nation-wide unemployment rates, nor led to large job losses in manufacturing. Critics nevertheless charge it has had a more insidious impact on manufacturing employment, by impairing the competitiveness of US firms, and encouraging the widespread flight of new investment to “pollution havens”–countries with a lax regulatory environment. However, a recent survey in a prestigious journal examining these hypotheses found no evidence to support them.5
The economic realities are clear: no trade-off at the economy-wide level, very small local job losses in manufacturing, little capital flight to pollution havens. Indeed, evidence is accumulating that environmental investments have the potential to spark regional economic development efforts.6 And yet the myth persists. In a 1990 poll, one third of the respondents believed that they personally were somewhat or very likely to lose their job as a result of environmental regulation.7
The myth persists because of the corporate world’s ability to spin the media. Reporters uniformly report–often without comment–the absurdly high job loss predictions that industry think tanks regularly churn out. More profoundly, journalists like the Times’ Kilborn are looking for someone to blame for rising income inequality, corporate downsizing, and increasing middle class insecurity. While the declining power of labor unions, increasing levels of import competition, and the rapid pace of automation are genuine suspects, environmental regulations are apparently a more comfortable villain.
Notes:
1. Eban Goodstein, Jobs and the Environment: The Myth of a National Trade-off. Economic Policy Institute: Washington, DC 1994
2. Michael E. Porter and Claas van der Linde, “Toward a New Conception of the Environment-Competitiveness Relationship,” Journal of Economic Perspectives, Fall 1995, 97-118.
3. Robert Hahn and Wilbur Steger. 1990. An Analysis of Jobs at Risk and Job Losses From the Proposed Clean Air Act Amendments. Pittsburgh: CONSAD Research Corporation:. p. ES.15.
4. Goodstein, “Jobs and the Environment“
5. Adam B. Jaffe, Steven R. Peterson, Paul R. Portney and Robert N. Stavins. 1995. “Environmental Regulation and the Competitiveness of US Manufacturing: What Does the Evidence Tell Us?” Journal of Economic Literature, 1995: 33-1, 132-63
6. Goodstein, “Jobs and the Environment: An Overview,” Environmental Management, 20-3, May, 313.1996; Thomas Powers (ed.), Economic Well-Being and Environmental Protection in the Pacific Northwest: A Consensus Report By Pacific Northwest Economists (Department of Economics, University of Montana: Missoula , 1996.
7. Goodstein, Jobs and the Environment.
Reference:
Eban Goodstein, “Jobs or the Environment? No Trade-off,”Challenge, January-February, 1995.
Editor: June Zaccone, Economics (Emer.), Hofstra University