Wednesday, April 04, 2012

The Role Of Job Impact Analyses In Environmental Policy Debates

Apr 3: The Institute for Policy Integrity (IPI) at the New York University School of Law has released a report entitled, The Regulatory Red Herring: The Role of Job Impact Analyses in Environmental Policy Debates. IPI is a non-partisan think-tank
using economics and law to protect the environment, public health, and consumers. According to a release from IPI, "Estimates of jobs gained or lost due to environmental regulations require much closer scrutiny than they're given. Very often these claims are made dramatically out of context, based on economic analyses that may not have been meant to support them." These are the main findings of a report.
    The study discusses how cost-benefit analysis can evaluate the effect of environmental regulation on layoffs and hiring, and criticizes the tendency for jobs impact models to be used in ways that are not helpful in debates over environmental protections. The report finds that too often, model results are cited without calling adequate attention to their limitations and assumptions. Different modeling choices can lead to drastically different conclusions.
    Michael Livermore, IPI's executive director and lead author of the report said, "Because these models are so sensitive, their results must be communicated properly. They do not lend themselves to the kinds of sweeping rhetorical statements you often hear in the political arena. Many times, claims about jobs and regulation find their way into a faulty conventional wisdom far removed from the evidence these analyses provide."
    The release indicates that while environmental regulation can lead to layoffs or hiring in specific regions or sectors, in a dynamic economy like America's, the overall effect is difficult to capture. For any particular environmental regulation, these offsetting effects are ambiguous and hard to predict. To better inform policymaking, model limitations and uncertainty should be acknowledged, and the impacts of regulation on employment must then be weighed against all the other costs and benefits of a rule.
    Livermore said, "The effect of a regulation on jobs is important, especially in a downturned economy. But those effects are likely much smaller than you might think by tuning into the political debate. Rather than staking the utility of a policy solely on this one element, basic economic principles would call for a more holistic view of regulation."
    The report points out that, "In an advocacy context, job impact analyses can tell very different stories, often depending on the narrator. In one revealing example, the American Coalition for Clean Coal Electricity estimated that two EPA rules on power plant emissions would trigger a 1.4 million job loss; meanwhile, using a different model and different assumptions, the Political Economy Research Institute predicted the same two rules would generate a 1.4 million job gain."
    By way of background, the report notes that, "Claims that environmental regulations cause unemployment have been a staple of political discourse for decades. But as the American economy continues to struggle in the aftermath of the 2008 recession, assertions about the negative employment impacts of environmental regulations have resurfaced with increasing volume and frequency. During roughly the first twenty days the 112th U.S. House of Representatives sat in session, congressional committees scheduled at least twenty separate hearings on the purported link between regulations and the nation's job woes. From 2007 to 2011, the phrase 'job-killing regulations' underwent a 17,550% increase in usage in U.S. newspapers (from just four appearances in 2007 to over seven hundred in 2011)."
    According to the report, "Perhaps most importantly, analysts and policymakers must recognize that even the most sophisticated job impact analyses have only limited predictive power in our complex and dynamic economy. While research should be carried out to refine and improve these models, the degree of uncertainty associated with estimates of employment impacts should be acknowledged.
    "This report examines the use of job impact analysis by the federal government and advocacy groups, discussing how cost-benefit analysis can incorporate regulatory effects on layoffs and hiring, and how job impact models can be used and misused in the public policy debate. On the basis of this analysis, several recommendations are offered:
  • Job impact analysis is not an alternative to, or substitute for, cost-benefit analysis. Rather, employment effects should be incorporated into cost-benefit analysis on the basis of traditional economic principles.
  • The difference between short-term and long-term unemployment should be taken into account when determining the economic costs of layoffs.
  • The potential for regulations to positively and negatively affect workers should be recognized.
  • Economic models used to predict employment effects should be well suited to the type of regulatory effect being estimated (e.g., regional versus nationwide and multi-sector versus single industry).
  • Uncertainty surrounding model predictions should be acknowledged by analysts and policymakers, and all assumptions and modeling choices should be disclosed.
    Access a release from IPI (click here). Access the complete 35-page report (click here). [#All]