NCPA - National Center for Policy Analysis

When the Color of Unemployment Is Green

November 4, 2011

With opposing comments coming from each side of the aisle, many members of the public are not sure what to believe about the net impact of environmental regulations on job growth.  Republicans are keen to emphasize that excessive regulations are legislating businesses out of the market, such as power generator Luminant in Texas that just shed 500 jobs.  Democrats respond that market players are more dynamic than Republicans would portray them to be, and that given time, businesses respond to regulations by creating new jobs, thereby reaching a new market equilibrium that is neither inherently better nor worse than the previous status quo, says Scott Shane, the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

However, recent studies suggest that the interplay between these two variables almost always results in a net loss of jobs.  The positions that are eliminated by the enactment of regulations are not compensated by new positions created by businesses seeking to come into compliance with the law.

  • MIT economist Michael Greenstone found that changes to the Clean Air Act eliminated 590,000 jobs over a 15-year period (1972 to 1987).
  • Economist Rema Hanna found that U.S.-based multinationals increased their non-U.S. assets by more than 5 percent and overseas production by more than 9 percent in response to that same act.
  • American Enterprise Institute's Kenneth Green found that green programs in Spain resulted in a net loss of 2.2 jobs for every one that was created.
  • Green also found that the capital necessary to create one green job in Italy could create almost five jobs in the general economy.

Critics respond that such researchers are making comparisons that are unjustly biased against green regulation, as they fail to incorporate the total net benefit (which is not entirely financial).  They point out that enormous health benefits to be received from cleaner air and water and that this perhaps compensates economic losses.  However, this is the point at which the government must establish clear and sensible priorities.  Conceding that environmental regulations augment health, the fact is that Americans value jobs more than the environment at this point in time.  While it may seem shortsighted to prioritize one over the other on that factor alone, the U.S. government must become more adaptable to changing circumstances, dealing with those issues that are most pressing at any given time.

Source: Scott Shane, "When the Color of Unemployment Is Green," The American, October 31, 2011.

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