Government regulation and jobs: what are the consequences?

• Author: Hopkins, Thomas D.

While the need to comply with government rules may require new workers, others may become unemployed as businesses find ways to make cuts.

Every major environmental regulation triggers a chain reaction. Some of the resulting effects are obvious and easily categorized. Less polluted air is a benefit; extra filtration hardware a cost. Many of the other effects that ripple out from initial compliance are not so easy to label correctly. This is especially apparent when jobs are at stake.

Compliance with regulations can lead to the creation and/or loss of jobs. Confusion about whether job creation is a benefit or a cost may skew decisions in a policy area with very large stakes. In 1991, American businesses and state/local governments spent $115,000,000,000 to comply with Federal environmental regulations. That translates into roughly $1,200 per household in higher product prices and state/local taxes. Judgments about whether these spending levels are too large or too small necessarily require some assessment of the effectiveness of such regulation in generating societal benefits. Sound regulatory decisions are less likely to emerge if job effects are misclassified.

Perhaps the most useful way to delve into the jobs issue is through a brief primer on the benefits and costs that should bear on regulatory decision-making. Obviously, the chief benefit justifying any environmental regulation is an anticipated improvement in the quality of air, water, and land, including reduction of the amount of pollutants.

The Office of Management and Budget (OMB) has criteria for the analysis that must accompany major regulations, and the Environmental Protection Agency (EPA) has issued detailed guidance building on the OMB's material. Taken together, the two constitute a useful road map for regulators through benefits territory.

Whether job creation is a benefit to society is not germane to the basic mission of environmental regulation. Just because compliance with a regulation causes an industry to hire 500 people is no indication of any benefit; presumably few would applaud a requirement that 250 people be hired to dig trenches and another 250 to refill them. For a regulation to generate any benefits, it must result in some environmental improvement from the jobs. The jobs themselves are not a benefit. Otherwise, simply throwing money at problems (which always gets at least someone a job) could look respectable, and featherbedding regulations would be encouraged. It is possible that, when a regulation generates benefits, some may be transferred to newly hired workers, but then it merely is a matter of benefits being redistributed - no new ones are created.

As the EPA correctly points out, the...