Prospective Employment Effects of California Proposition 23

October 7, 2010

If approved by the California electorate this November, Proposition 23 will suspend the implementation of the California Global Warming Solutions Act of 2006 (AB 32) until the California unemployment rate declines to 5.5 percent or less for four consecutive quarters.  AB 32 directed the California Air Resources Board to begin developing discrete early actions to reduce greenhouse gases while also preparing a scoping plan to identify how best to reach the 2020 emissions limit of 427 million metric tons of carbon dioxide equivalent of greenhouse gases.

Given the increasingly controversial nature of the scientific and economic analyses underlying policy proposals ostensibly directed at the purportedly adverse effects of greenhouse gas emissions, and given the economic and employment conditions now characterizing the state, the employment effects of AB 32 have become an important political and policy concern, says Benjamin Zycher, a senior fellow at the Pacific Research Institute.

Zycher uses the historical relationships among employment, aggregate output, the capital stock and total energy consumption for California to derive projections of the effect of AB 32 upon aggregate employment in the state for the period 2010-2020.

  • Suspension of AB 32 would yield increases in aggregate California employment (relative to the case with implementation of AB 32) of a bit less than 150,000 in 2011, rising to more than a half million in 2012 and about 1.3 million in 2020.
  • This assumes that four consecutive quarters of unemployment at 5.5 percent or less would not be observed, so that implementation of AB 32 would not resume.
  • Long-term annual employment growth would fall by one percentage point.
  • If Proposition 23 is enacted, the ratio of employment to the population aged 18-65 years will rise to 67.5 percent in 2020 (up from 66.8 percent in 2009); if AB 32 is implemented, it will fall to 62.4 percent in that year, an employment loss equal to about 5 percent of the working age population.

Sound economic analysis provides no basis upon which to predict that the employment effects of AB 32 would be positive, a reality directly relevant to the choices now facing public officials and the California electorate, says Zycher.

Source: Benjamin Zycher, "Prospective Employment Effects of California Proposition 23," Pacific Research Institute, October 2010.

 

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