A favorite meme of the Left these days is that regulation doesn’t really kill jobs. The arguments generally rest on a few very shaky pillars.
First, the liberals point to a study showing that of recent mass layoffs, very few were attributed primarily to regulations.
Second, they point out, as Keith Ellison did here, that regulations create some jobs, as businesses have to scramble to comply with them.
Third, they say, hey, regulations can’t be so bad, because some businesses actually profit off them.
A Washington Post article today leans on these arguments in an article that will surely become a resource for pro-government liberals this election year. The headline: “Does government regulation really kill jobs? Economists say overall effect minimal.”
Post reporter Jia Lynn Yang cites a federal study to make this claim: “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.”
That’s a slightly inaccurate way of putting it. In truth (as Yang reports), the study was reporting (a) only on mass layoffs, and (b) only on the No. 1 cause cited by managers. So, while regulation does cause plants to shutter (see GE’s light-bulb factories in Virginia, Ohio, and Kentucky), this study wouldn’t pick up any of the countless other ways regulations cost jobs.
In monopoly-dominated industries, including the utility industry on which Yang focuses, businesses are able to pass along all costs, or nearly all costs to consumers. (This is one reason AEP supported the Waxman-Markey climate legislation – it would prime regulators to allow for rate hikes.). So the utility doesn’t have to downsize after the regulation, but ratepayers are now poorer.
The more you pay for electricity, the less you’re saving, investing, or spending at your local pub. This means less investment capital is out there, and less consumption. This costs jobs around the economy, even if not at the utility.
In other industries, regulation often prevents expansion. Take a look at this Wall Street Journal cover story on Italy, where businesses are much more regulated than here:
Hemmed in by a thicket of regulation and legal restrictions, many of these families have learned to survive by doing business within networks of trusted customers and suppliers, rather than taking risks by dealing with outsiders.
“These firms have less propensity to innovate, engage less in research and development and rarely penetrate emerging markets,” said Mario Draghi, ECB President and former Bank of Italy head, in a recent speech.
Along these lines, think of all the regulations that have small-business exemptions – like ObamaCare’s employer mandate. Do you really think a 48-person firm is really going to add two more employees once that mandate kicks in for all 50-person firms?
These regulations may not kill jobs as much as prevent them.
Yang also talks about the jobs created through regulatory compliance:
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 full-time employees to monitor the scrubber, which doubled the footprint of the unit. The device requires so much machinery it has its own control room.
This is job-creation, but it’s also wealth-destruction. Our complex tax code has created 900 tax-avoidance and tax-lobbying jobs at General Electric, but is that a good thing? Again, AEP’s costs are passed on to consumers. So, rather than us spending disposable income on what we want (books, vacation, investment), we spend it on monitoring a scrubber. Maybe this economic loss is worth the environmental gains, but it’s still an economic loss.
And addressing the third argument — hey, industry likes these regs, they can’t be that bad — I think the GE light-bulb example and the AEP example show how industry-regulatory collusion often hurt everyone else.
