Throughout last fall's presidential campaign, Bill Clinton and Al Gore argued that environmental regulation can foster economic growth by creating jobs and encouraging the development of new technology. In a recent paper, Rochester Institute of Technology economist Thomas D. Hopkins takes aim at this misconception.
In "Regulation and Jobs: Sorting out the Consequences," available from the Center for the Study of American Business at Washington University, Hopkins focuses on the concept of opportunity cost: foregone alternative uses for labor and capital. Since the resources used to comply with regulations would otherwise have been used to produce goods and services, he notes, job and technology creation is actually a cost of environmental regulation rather than a benefit.
"Just because compliance with a regulation causes an industry to hire 500 people is no indication of any benefit," Hopkins writes. "Presumably few would applaud a requirement that 250 people be hired to dig trenches and another 250 to fill them. For a regulation to generate benefits, it must result in some environmental improvement from the jobs. The jobs themselves are not a benefit. Otherwise, simply throwing money at a problem (which always gets at least someone a job) could look respectable, and featherbedding regulations would be encouraged."
Rather than producing a net increase in jobs, Hopkins notes, regulations are likely to shift labor around: More people are employed to process waste, for example, and fewer to produce goods and services. This shift may be worthwhile if the environmental gain is great enough, but the wages paid for the new jobs should be viewed as a cost.
Similarly, technology developed to comply with environmental regulations uses resources that would otherwise have been employed elsewhere. "When one technological innovation is pursued as a result of regulation," Hopkins writes, "another necessarily is not—firms have limited research and capital budgets, after all. It is…highly implausible that firms, in the absence of regulation, would be allocating their funds to the less profitable investments."
Hopkins calls for a more honest approach to evaluating proposed environmental regulations—one that considers the opportunity costs of shifting labor and capital from production to environmental protection as well as the direct costs of compliance.
This article originally appeared in print under the headline "Spurious Spinoffs".