With friends like these…
This past Wednesday on Marketplace, the regulation-and-jobs debate came up again. An NPR segment with two leading economists who have provided cutting-edge research on why many environmental regulations have very high benefit/cost ratios was … both unhelpful and wrong about the current debates regarding regulatory changes.
Rob Stavins argued that the effect on jobs of regulatory changes is second-order and shouldn’t be the driver of public debate. He’s clearly right. Then he said, “This is an area where unfortunately one has to curse both sides of the debate.” The NPR reporter immediately followed: “These aren’t end-of-the-economy-as-we-know-it job destroyers. They aren’t miracle economic growth engines.”
This is maddening. While it’s not clear whether it’s Stavins or the NPR reporter setting up the “crazies on both sides” frame, it is worth pointing out that the anti-regulatory side has indeed routinely made crazy claims about the job-destroying impact of regulations. But, on the pro side, who has claimed that new regulations would be “miracle economic growth engines?” Seriously, who? It’s true that proponents of green-jobs often make some large claims about their potential as economic growth engines – but these are always premised on policy proposals that are much larger than just regulatory changes. I really can’t think of a single analyst or advocate who has claimed that regulatory change alone could serve as a jobs program (ed note – To be clear, by “regulatory change” I mean specifically “adopting new regulations” – the other side’s contention is that doing away with all (or even some) regulations will indeed have a mammoth positive impact on jobs).
Michael Greenstone then argued, “The costs of these regulations are greater in challenging economic times like the current one.”
Again, this is just not right. In fact, when the economy has lots of excess slack and interest rates have run up against the zero-bound and cannot provide any further incentives for firms to borrow and undertake job-creating investments in plant and equipment, then any exogenous policy change that does shake free some plant and equipment investments will create new jobs and provide a boost to the economy. In short, the costs of passing regulations that require firms to make outlays on new investments to comply are lower, not higher, in times like these. In fact, for some rules, the net new jobs created by these investments lead the overall jobs-impact of undertaking them now to be positive.
And how has EPI described the jobs-impact of regulatory changes? In a comprehensive literature survey, John Irons and Isaac Shapiro conclude:
“this review of the studies of regulations in place finds little evidence of significant negative effects on employment. Overall, the picture that emerges from this review is a positive one. For decades, regulations have generally and consistently struck a reasonable balance, with their benefits to health, safety, and well-being far exceeding their costs.”
And, in a comprehensive look at a particular regulatory change, the “air toxics rule,” I wrote:
“The claims of this paper are conservative—the toxics rule is not a jobs program. Instead, it is a regulatory change that generates great benefits at moderate costs and, along the way, will likely create a relatively modest number of jobs.”
This is just not an issue (regulation and jobs) where both sides deserve a pox – one side is being careful and weighing evidence and the other side is just bloviating.