The possibility that workers could be adversely affected by environmental policies imposed on heavily regulated industries has led to claims of a "jobs versus the environment" trade-off by both business and labor leaders. The present research examines this claim at the industry level for four heavily polluting industries: pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills. By focusing on labor effects across an entire industry, we construct a measure relevant to the concerns of key stakeholders, such as labor unions and trade groups. We decompose the link between environmental regulation and employment into three distinct components: factor shifts to more or less labor intensity, changes in total expenditures, and changes in the quantity of output demanded. We use detailed plant-level data to estimate the key parameters describing factor shifts and changes in total expenditures. We then use aggregate time-series data on industry supply shocks and output responses to estimate the demand effect. We find that increased environmental spending generally does not cause a significant change in industry-level employment. Our average across all four industries is a net gain of 1.5 jobs per $1 million in additional environmental spending, with a standard error of 2.2 jobs—an insignificant effect. In the plastics and petroleum sectors, however, there are small but significantly positive effects: 6.9 and 2.2 jobs, respectively, per $1 million in additional expenditures. These effects can be linked to favorable factor shifts—environmental spending is more labor intensive than ordinary production—and relatively inelastic estimated demand.
Resources Radio: Energy Inefficiency, with RFF's Joshua Blonz
Host Daniel Raimi and Joshua Blonz, a postdoctoral fellow at RFF, talk about his recent research on an energy efficiency program in California, the...
The Welfare Costs of Misaligned Incentives: Energy Inefficiency and the Principal-Agent Problem
I measure the welfare costs of the principal-agent problem in the context of an energy efficiency appliance upgrade program. I find that the principal-agent problem turns an otherwise welfare-increasing program into a welfare-reducing program.
Buyer Beware: An Analysis of the Latest Flawed Carbon Tax Report
Not all economic analyses are created equal. Those that do not meet fundamental scientific standards should be ignored by policymaking communities.