The Employment Costs of Regulation

The Employment Costs of Regulation

 

Regulatory agencies don’t consider the possible impact they may have on labor markets, even though they have been, since 1971, increasingly subject to requirements that they consider the effect of regulatory change on the economy. Unfortunately, the failure to focus effectively on the employment impact of regulation means that the analysis misses several important aspects of regulation. First, agencies ignore the economic cost of job loss in the regulated industry, despite strong evidence that job displacement of any type is very costly for individuals, families, and communities. Second, agencies ignore the economic cost of indirect job loss in other industries resulting from higher priced regulated goods or services. For example, the Environmental Protection Agency found that its proposed Toxics Rule would raise the price of electricity by nearly four percent and, as a result, higher energy prices would raise prices and reduce sales in 19 associated industries. If they had carried their analysis further, they would have found that for every job lost in the electrical industry, eleven jobs would have been lost in other industries. And each of these additional jobs lost would be very costly for individuals, families, and communities. Finally, there is evidence that high levels of regulation can affect the economy dynamically and at the macro level. With respect to labor markets, this means that regulations can affect job creation, wage growth, and workforce skill mismatching with available jobs. The latter can result in lower labor force participation and higher unem- ployment rates in the long run.

 

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