Friday, October 21, 2011

On job loss estimates from regulation

The current talk in Republican circles is that one can achieve significant job growth by deregulating. One may want to question this idea on two fronts. First, regulation has been initially imposed not for the fun of killing jobs, but because it improves the well-being of people. There is a trade-off, and sometimes it is worth having a little fewer jobs if it means improving the life of a lot of people. Second, the job loss numbers from regulation are often more fantasy than reality.

This is not a new question. Take the case of Australia, as discussed by Bruce Chapman. He looks at estimate of job loss in Australian mining from the implementation of an emission trading scheme. These 23,510 lost jobs are not as large as they appear. First, there would be job gains elsewhere, in particular in alternative energies. Second, when compared to normal job flows in the mining sectors, this number is quite negligible. Third, once you look at a somewhat longer horizon, say, ten years, a job loss is virtually undetectable. I would add finally, measurement of jobs losses has high uncertainty, and any result commissioned by one party in the debate needs to be taken as an extreme value.

So, do not have too high hopes that a sudden deregulation will create a job boom, especially in a country that has remarkably little regulation to start with.

1 comment:

Anonymous said...

On this issue, I strongly recommend a paper by R. Morgenstern, W. Pizer and J.-S. Shih. They looked at the impact of past environmental regulations on jobs in the US, and found that the impact on jobs is... non-existent. Basically, they highlight several channels through which regulations affect jobs. Some are positive, others are negative. On average, these channels cancel each other, and the impact on jobs appears very small. The conclusion is that regulation improves welfare by reducing pollution and health impacts, with no (or very little) impact on employment. Removing regulation will not save the US economy, but would reduce US population welfare!