Do Regulations Really Kill Jobs?

It was in the early days of Ronald Reagan’s campaign for president that America first started frequently hearing the term “job-killing regulations” in response to an increasing number of environmental laws. Reagan criticized the Carter administration for doing a terrible job with the economy, and said these failures were related to Carter’s “continuing devotion to job-killing regulation.” Reagan used this phrase a lot on the campaign trail, according to Cary Coglianese, a professor at the University of Pennsylvania and the editor of Does Regulation Kill Jobs?

Within a few years, other Republicans had picked up the term. As Coglianese writes, California’s governor Pete Wilson in 1991 blamed environmental regulation for imposing “job-killing burdens” on the state’s economy, for instance, and Oklahoma Senator Don Nickles called Clinton-era rules “the most intrusive, expensive and job-killing regulation handed down.” Michele Bachmann, the congresswoman from Minnesota, in 2011 said she wanted to rename the Environmental Protection Agency “the job-killing organization of America” and Mitt Romney lamented that “Day by day, job-killing regulation by job-killing regulation, bureaucrat by bureaucrat, this president is crushing the dream.”

Donald J. Trump has more recently picked up the mantle. One of his campaign pledges was to ask department heads to “submit a list of every wasteful and unnecessary regulation which kills jobs, and which does not improve public safety, and eliminate them.” In a video released by his transition team in November, he echoed this pledge. “On energy, I will cancel job-killing restrictions on the production of American energy, including shale energy and clean coal, creating many millions of high-paying jobs,” he said. For every new regulation implemented, he said, two old regulations would be eliminated.

In some cases, the politicians do have a point: Regulations that seek to make air and water cleaner can also cause concentrated job losses in certain industries and locations. These losses are painful for the people they affect, who often have a hard time finding new employment, especially in regions where a newly-regulated industry is concentrated.

But the idea that regulations stunt job growth more broadly is not supported by research. Many of the academic studies that have explored the question find that regulations don’t decrease jobs in the overall economy. They sometimes reduce jobs in certain sectors, but they create new jobs in others. A factory that makes lead additives for gasoline might be shut down because regulations have banned lead additives. But new jobs will then be created at a factory that makes catalytic converters, which are emissions-control devices for cars. Some workers, then, benefit from regulation, while others lose. That doesn’t mean that the losses aren’t real and painful for the people who held those jobs, but the overall picture is not one that can be accurately characterized by the phrase “job-killing.”

“If you look across the entire economy and you look in the aggregate as to jobs lost as well as jobs gained by regulation, it’s generally speaking a wash,” Coglianese said.

Job loss and creation is also a normal part of any economy; some companies go out of business because their goods or services are no longer in demand, while other jobs are created as new companies emerge to fill new demands. This is not the fault of regulations, but is rather a result of business conditions, Coglianese said. That doesn’t mean companies don’t try to blame regulations for their failures. A well-known case of a copper smelter outside of Seattle highlights this point. The company, ASARCO, complained that the smelter closed because of regulations, but the factory actually went out of business before the regulations were implemented, Coglianese said.

Often, regulations affect all companies in an industry, so although businesses may have to spend more money on installing pollution-controlling devices, for example, their competitors have to spend that money too. That means they can continue to compete, because everyone is experiencing the same rise in costs.

A well-known study by the economists Eli Berman and Linda T.M. Bui of Boston University looked at the aftermath of new regulations governing air quality in Los Angeles. The South Coast Air Quality Management District in Los Angeles enacted some of the country’s most stringent air quality standards in the 1980s, and Berman and Bui compared Los Angeles firms with those in Louisiana and Texas to see if the more regulated firms cut jobs as a result. They found that the local air quality regulations were not responsible for a large decline in employment, and that the regulations might have actually increased labor demand since firms need to hire people to help them deal with the new regulations. They argued that because all firms in a region were affected by the same regulations, they were still able to compete against one another while facing the same costs. “We find no evidence that local air quality regulation substantially reduced employment,” they concluded.

In another oft-cited study, the economist Richard Morgenstern, a former EPA administrator who is now at the nonprofit Resources of the Future, looked at Census data between 1979 and 1991 to determine whether regulation of some pollution-causing industries destroyed jobs. Morgenstern and the economist Anna Belova of the research firm Abt Associates updated the paper in 2013 with more data. They found that over 30 years in industries including petroleum, plastics, pulp and paper, and iron and steel, there were some net job increases, and no significant job losses as a result of regulation. “A million dollars of additional…[regulation] expenditure is associated with an insignificant change in employment,” Morgenstern writes.

Sometimes, regulations may cause jobs to shift from one area of the country to another. A well-known study by Michael Greenstone looked at the effects of the Clean Air Act, which set a minimum level of air quality that counties were required to meet, and further regulated polluters in areas that did not meet the standards. Greenstone found that the regulations might have led to 40,000 job losses a year in facilities in parts of the country that had “dirty” air. But it’s possible that those losses were offset by job gains in cleaner areas, if factories relocated there, or if new businesses were created there. Still, even if there were jobs created in other states, it’s not easy for people to uproot their families and move to those other jobs, even if they can find them.

Of course, the purpose of environmental regulation is not merely to avoid killing jobs, and there are real society-wide benefits in protecting the environment that must be taken into account as well. Often those gains far outweigh any economic damage the regulations may cause. For example, in a 2013 paper in the Quarterly Journal of Economics, the Berkeley economist W. Reed Walker followed what happened to workers at firms impacted by the 1990 Clean Air Act Amendments, which required polluting firms to obtain operating permits. He wanted to know whether workers who left newly-regulated companies were able to easily find other jobs (he did not know whether the workers were fired or quit, just that they left). He found that the many workers in the regulated sectors left their firms, and that the average worker saw an earnings loss equivalent to 20 percent of their pre-regulatory earnings. This amounted to $5.4 billion in lost earnings—no small sum. Yet the EPA has calculated that the health benefits of the amendments between 1990 and 2010 are between $160 billion and $1.6 trillion. “In light of these benefits, the earnings losses borne by workers in newly regulated industries are relatively small,” Walker concluded. “Benefits from environmental policy far exceed the costs.”  

So why do politicians persist in echoing the decades-old sentiments of Ronald Reagan that environmental regulations kill jobs? Perhaps because regulations are something elected officials can control. Coglianese has shown that mentions of “job-killing regulations” peak in times of economic uncertainty, such as during the 2007-2009 recession. Often, when the economy goes sour, there’s not a whole lot politicians can do except pledge to repeal laws that they scapegoat for killing jobs—laws, it should be noted, that many of their supporters and donors already do not like. “Even the word sounds dreadful,” Coglianese said. “It would be different if you said we want to get rid of job-killing clean air policies.”

And politicians, of course, are elected to protect their local communities, and they will not win any votes by pointing out that while regulations may be causing pain locally, they’re helping people somewhere else. This was in evidence in the Wednesday confirmation hearing of Scott Pruitt to be the head of the Environmental Protection Agency. “EPA regulations crushed energy jobs in my state,” Senator John Barasso, Republican of Wyoming, said in the hearing’s opening. Senator Shelley Moore Capito of West Virginia later echoed this sentiment. “The regulatory overreach of the EPA has contributed to economic devastation in my state of West Virginia,” she said. There are likely new jobs being created elsewhere as coal and oil jobs disappear in Wyoming and West Virginia—jobs in wind power and solar technology, for instance. But those jobs aren’t necessarily going to help the people who have seen their livelihoods disappear, such as the constituents of Barasso and Moore Capito. It’s probably a better political judgement call to blame regulations than to acknowledge the difficult truth that the economy is changing and that some regions are not going to have the jobs and opportunities they once did.