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Economy
Does government regulation really kill jobs?
Economists say overall effect is minimal.
By Jia Lynn Yang November 13, 2011
The Muskingum River coalfired power plant in Ohio is nearing the end of its life. AEP, one of the country’s biggest
coalbased utilities, says it will cut 159 jobs when it shuts the decadesold plant in three years — sooner than it would
like — because of new rules from the Environmental Protection Agency.
About an hour’s drive north, the life of another power plant is just beginning. In Dresden, Ohio, AEP has hired
hundreds to build a naturalgasfueled plant that will employ 25 people when it starts running early next year — and
that will emit far fewer pollutants.
The two plants tell a complex story of what happens when regulations written in Washington ripple through the real
economy. Some jobs are lost. Others are created. In the end, say economists who have studied this question, the
overall impact on employment is minimal.
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“If you’re a coal miner in West Virginia, it’s not a great comfort that a bunch of guys in Texas are employed doing
natural gas,” said Roger Noll, an economics professor at Stanford and codirector of the university’s program on
regulatory policy. “Some people identify with the beneficiaries, others identify with those who bear the cost, and no
amount of argument is ever going to change their minds.”
The arguing has lately turned into a brawl. In the face of the country’s unemployment crisis, many politicians have
portrayed regulations as the economy’s primary villain.
2. House Republicans have identified 10 “jobdestroying regulations” they want to repeal, and a steady stream of bills
have been proposed to block environmental rules governing everything from cement plants to boilers. GOP
candidate Mitt Romney has vowed that on his first day as president, he will “tear down the vast edifice of regulations
the Obama administration has imposed on the economy.” The White House, meanwhile, says it is making a
determined effort to assess how rules are affecting jobs.
The critique of regulations fits into a broader conservative narrative about government overreach. But it also comes
after a string of disasters in recent years that were tied to government regulators falling short, including the financial
crisis of 2008, the BP oil spill and the West Virginia mining accident last year.
Data from the Bureau of Labor Statistics show that very few layoffs are caused principally by tougher rules.
Whenever a firm lays off workers, the bureau asks executives the biggest reason for the job cuts.
In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government
regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.
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Limits on emissions
Set along a bucolic stretch of road two hours east of Columbus, the smokestacks of the Muskingum River plant rise
suddenly from the landscape like skyscrapers. Beside the plant, huge mounds of coal wait to be lifted by a conveyor
belt, then dumped into machines to be pulverized into powder before being burned.
Last year, the plant emitted 98,515 tons of sulfur dioxide, the thirdhighest total in the country, according to data
collected by the EPA.
The agency is tightening limits on sulfur dioxide emissions under the CrossState Air Pollution Rule. To comply,
many older coal plants must install enormous devices called scrubbers, which remove sulfur dioxide from the
exhaust emitted by the smokestacks.
Built more than 50 years ago, the Muskingum River plant has no scrubbers, and the company says it cannot add
3. them in time to meet the EPA’s deadlines.
AEP chief executive Mike Morris said that retrofitting plants would add jobs but that he needs more time from the
EPA.
“We have to hire plumbers, electricians, painters, folks who do that kind of work when you retrofit a plant,” Morris
said. “Jobs are created in the process — no question about that.”
Another AEP coal plant in nearby Conesville required more than 1,000 temporary workers to build a scrubber for
one of its units. The plant then added 40 fulltime employees to monitor the scrubber, which doubled the footprint
of the unit. The device requires so much machinery it has its own control room.
Ralph Izzo, chief executive of the New Jersey utility PSE&G, said installing scrubbers at two of his company’s coal
plants created 1,600 jobs for two years, plus 24 permanent ones.
Critics from groups such as the Environmental Defense Fund say that AEP has had plenty of time to comply with the
rules, which have been years in the making, and that some of these coal plants are too old and too dirty to continue
operating.
“Everyone has this idea that the EPA could shut a plant down,” said Rachael Belz, organizer of the coal program at
Ohio Citizen Action. “But these decisions are being made by AEP, or Duke Energy. These are business decisions.”
Some of the coal plants are approaching the end of their life spans anyway. And the price of natural gas has
plummeted as people have discovered how to unlock gas from shale rock.
“The coaltogas switch is already on for pure economic reasons,” said Mark Fulton, global head of climatechange
investment research at Deutsche Bank.
He recently coauthored a study concluding that, by 2020, the shift to natural gas and renewables will generate a net
500,000 jobs in the United States.
Standing on the construction site of AEP’s natural gas plant in Dresden, Ron Borton spoke excitedly about the
future.
“I’m making the shift from coal to gas,” said Borton, who spent 20 years working at the Conesville coal plant before
becoming operations and maintenance superintendent of the Dresden project two years ago.
“I looked at this as an opportunity to learn something new,” he said. “You don’t hear many people complaining about
4. a gas plant.”
But the Dresden plant will require fewer workers. There will be just 25 fulltime AEP employees, compared with the
159 at Muskingum.
“Our level of automation is really heavy,” Borton said. “One guy could run this plant.”
Attacks on regulation
There is no question that a regulation can add costs for businesses and sap the resources and time of busy
executives.
Companies have long complained that spending money following rules means there’s less left over to invest in
research or expand their businesses.
But recently, more in Washington are making another case. They argue that getting rid of regulations will directly
create jobs.
President Obama has heard versions of this argument from powerful business lobbying groups, individual chief
executives — including members of his own jobs council — and his rivals on the campaign trial.
Economists who have studied the matter say that there is little evidence that regulations cause massive job loss in
the economy, and that rolling them back would not lead to a boom in job creation.
Firms sometimes hire workers to help them comply with new rules. In some cases, more heavily regulated
businesses such as coal shrink, giving an opportunity for cleaner industries such as natural gas to grow.
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“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or
major job gains,” said Richard Morgenstern, a senior fellow at the nonpartisan think tank Resources for the Future
who worked at the EPA starting under the Reagan administration and continuing into President Bill Clinton’s first
term.
A decade ago, in a landmark study, Morgenstern and others looked at the effect of regulations on four heavily
polluting industries — pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills —
between 1979 and 1991.
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The researchers concluded that higher spending to comply with environment rules does not cause “a significant
change” in industry employment. When jobs were lost, they were often made up elsewhere in the same industry. For
every $1 million companies spent, as many as 1 / net jobs were added to the economy.
The White House has tried to be particularly sensitive about the burden on businesses when rules are added. This
year, Obama issued an executive order that agencies pay close attention to how rules might affect employment.
“This kind of sustained attention to jobs impact is new,” said Cass Sunstein, the White House’s regulatory chief. “I
think it is very important to make sure regulations are compatible with our economic goals. But the idea of
brandishing ‘jobkilling regulations’ as a nearepithet is probably less nuanced than is ideal.”
Sunstein said he is sensitive to the possibility that when there is higher unemployment, there could be a higher risk
that people working in regulated industries may have to wait longer to find new jobs.
Regardless, regulatory experts say that viewing a rule solely through the lens of whether it will cost jobs misses the
point.
Noll, the Stanford professor, said the government could outlaw tractors to create $5aday jobs for people working
in the fields, but “that would not be a legitimate social goal.”
“The notion that we should deregulate everything because we have a recession is completely wrongheaded,” he said.
“Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated.
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“The right question is: On balance, does our society benefit?”
Staff writer Steven Mufson in Washington contributed to this report.
Jia Lynn Yang is a business editor at The Washington Post.
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