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Estimating the Job Impacts of Environmental Regulation

Anna Belova, Wayne B. Gray, Joshua Linn, Richard D. Morgenstern, and William Pizer


January 20, 2017
In the face of strong policy interest in the possible regulation–jobs linkage and weak analytical evidence to support a generalizable conclusion, what should a regulatory agency like the Environmental Protection Agency do in a regulatory impact analysis (RIA)? Initially, an RIA should start with a clear concept of what the regulatory agency is trying to estimate. Much of the popular debate is looking for a total job effect. Yet one thing we do know is that, in aggregate, there will not be a net job change unless the economy deviates from its normal rate of full employment.

Abt's Anna Belova co-authored this literature review which suggests that looking to historic data for stable statistical relationships between regulatory spending and job changes, even in a single industry, is tenuous at best. However, the intuition is relatively easy to trace out with certain assumptions: (1) added costs imply added activity that entails added jobs; (2) higher product prices or other regulatory limits imply less production that entails fewer jobs. Taking an average employment rate per dollar of relevant economic activity, coupled with an assumed demand elasticity, these effects can be multiplied out into job changes, although such simple calculations must be tested by validating key assumptions or exploring the estimates sensitivity to alternatives. 

North America