2012-05-17

Co.Exist

Do Fewer Regulations Mean More Jobs?

A new report suggests that if we just drilled more, more people would be working. But that logic is deeply flawed.

Last week, the Western Energy Alliance released a report (PDF) claiming 120,905 jobs could be created if the U.S. government would just make it easier to drill for gas on public lands. There is no shortage of papers like this one, but there is a serious shortage of scrutiny of their results.

In this case, as with many others, the suggestion seems to be that a certain number of jobs could be gained by a policy change--that the nation’s economy will be 120,905 jobs richer and that 120,905 people who currently do not have a job will now be employed.

If only it were that easy. But it’s not, and it is misleading to suggest that it is.

Reports like these are salient because unemployment numbers are high and Americans are worried about jobs. While employment has picked up in recent months, there remains a massive jobs deficit caused by the recession, and millions of Americans are still out of work. But bridging that deficit will require more than cooked up numbers and false expectations.

The WEA report is based on the simple, but deeply incomplete, premise that if we open up public lands, there will be more drilling, which means people will be hired to work on the wells and will spend their money locally, causing even more hiring. (The second largest employment sector predicted to be impacted by expanded drilling in Utah, for example, is: “food services and drinking places.”)

There are many small problems with the WEA analysis, and one giant error. The small problems are easy to spot--the failure to conduct analysis of the sensitivity of the results to assumptions in the model; the reliance on “induced” jobs that are much harder to predict; the misleading use of the term “jobs created” to describe a single year of work as opposed to a permanent position. These kinds of problems could be fixed through more careful analysis and more clear reporting of the results.

But there would still be the one giant error. There is a massive and dubious leap from showing that opening lands for development will result in local hires--almost certainly true--to showing there will be a net increase in employment in the economy. How many of those hired will come from the pool of unemployed workers, rather than people leaving their current jobs? To what extent will new positions simply reallocate labor across regions? What alternative uses for private capital will investment in these projects displace?

These questions are not answered in this type of analysis. Without this information, it is impossible to say what the aggregate effects on labor markets will be. At most, it predicts that there will be an increase in demand for certain types of workers in specific regions and sectors. But it does not examine offsetting economic effects to distinguish mere shifts of labor and capital from genuine, overall gains for the economy.
Reports like these are a dime a dozen. Everyone wants to show that their favored policies create jobs while those of their opponents are “job-killers.” Unfortunately, very often the analyses used to make these claims are not appropriate for that purpose and their results mislead a public rightfully concerned about unemployment rates.

The bottom line is that no environmental or energy regulation or policy is likely to move the needle on jobs--even the biggest among them will have negligible effects on national employment levels. That debate is nothing more than a red herring.

Meanwhile, there are better questions to ask: What are the overall costs and benefits of these measures to the American public? How do they affect health and welfare? By taking the focus off these questions with distracting claims about jobs, perhaps WEA is signaling that the genuine economic impacts of the policies it favors aren’t particularly attractive.

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2 Comments

  • Nosybear

    Reports like this are the basis of the old saw, figures lie and liars figure.  And grist for the Right's disinformation mill.

  • Major Plonquer

    Do Fewer Regulations Mean More Jobs?

    No, the opposite is true.  The more regulations you people create in USA, the more jobs we have here in China. 

    So, please, keep up the good work.  And thanks for all the money too.