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Clearing the Air: The Impact of Air Quality Regulations on Jobs

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The Impact of Air Quality Regulations on Jobs

by Eli Berman and Linda T.M. Bui

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Executive Summary

The employment effects of environmental regulation have been hotly debated. Public opinion surveys show strong support for measures intended to produce a cleaner environment, but workers often feel that these measures threaten their jobs.

Is their anxiety justified? Economic theory and empirical studies to date are ambiguous on the employment effects of environmental regulation. Theory tells us that regulation can reduce employment by raising marginal costs and decreasing sales; it also tells us that regulation can increase employment by creating a demand for workers to monitor and maintain pollution control equipment. Empirical studies have produced conflicting results. Much of the ambiguity is probably due to the difficulty in accurately measuring the cost of environmental regulations and to the problem of distinguishing between firms with low abatement costs that voluntarily control emissions and firms with high abatement costs that adapt to the regulations reluctantly.

This study, by estimating the effect of regulation on employment directly, avoids the problem of attempting to measure abatement activity. It also concentrates on plants that have been forced to abate by regulation. Data on employment are drawn from Census Bureau observations of individual plants in the Census of Manufactures and the Annual Survey of Manufactures.

The analysis focuses on the regulation of air pollution in manufacturing plants in the Los Angeles region. Because this area has some of the worst air quality in the nation, the South Coast Air Quality Management District has been forced to adopt regulations of unprecedented stringency to comply with national air quality standards dictated by the Environmental Protection Agency. The study examines employment growth in the Los Angeles region in plants subject to these regulations, and compares growth at these plants to employment growth at similar plants in Texas and Louisiana, areas that had no significant increase in local air quality regulation.

The study finds:

  • While the South Coast regulations imposed high costs on regulated plants, they had little effect on employment. There were about two jobs created per plant affected by South Coast regulations, though that number is not statistically different from zero. However, large job losses due to these regulations can be ruled out by the data.
  • Job losses from induced exit and dissuaded entry due to regulation, as measured in the Census of Manufactures, were small.
  • The oil industry in the South Coast, which was subject to particularly costly regulation, did not show evidence of a decline in employment relative to the facilities in Texas and Louisiana.
  • A decline in military spending in the late 1980s and early 1990s caused significant job loss in the aerospace and shipbuilding industry in the Los Angeles region during this period. The economic hardship that resulted may have contributed to the belief that air pollution regulations introduced during this period had reduced local employment.

The major finding of this study is that the most severe episode of increased air quality regulation of manufacturing industries did not have a large effect on manufacturing employment. This finding should inform debate on the effects of current and future increases in the stringency of national air quality standards.

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