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Does Pollution Regulation Kill Jobs? Lessons for China from the U.S.

A factory in China at the Yangtze River. A new paper by Dong Guo, Satyajit Bose and Kristina Alnes explores the impact of pollution regulation in China by examining available theories and case studies from the U.S. Photo: High Contrast / Wikipedia
A factory in China at the Yangtze River. A new paper by Dong Guo, Satyajit Bose and Kristina Alnes explores the impact of pollution regulation in China on employment by examining available theories and case studies from the U.S. Photo: High Contrast / Wikipedia

By Dong Guo, Satyajit Bose and Kristina Alnes

The problem of air pollution in China continues to reach new heights. To combat the problem in any real way stringent regulation is needed. A new paper from Columbia University’s Earth Institute finds that this can be done without hurting job creation.

Air pollution has become a significant burden for the Chinese, with major effects on human health and wellbeing. As photos of Beijing smog circulate around the world and public discontent grows, Chinese policy makers are frantically attempting to find pragmatic approaches to mitigate the problem.

The latest of these is the Beijing authorities’ commitment to building ventilation corridors, a network of parks, rivers and low building blocks, designed to facilitate improved air flow. On a long-term national scale, environmental protection is emerging as a priority. In his address to the Second Session of the 12th National People’s Congress on March 5, 2014, Premier Li Keqiang said, “Environmental pollution has become a major problem, which is nature’s red-light warning against the model of inefficient and blind development.”

Despite the seeming urgency, Chinese environmental policy has been widely criticized as “too little—too late.” One known major impediment to stricter regulation is the fear of slowing down the economy, and specifically hurting job creation. Despite rapid growth, nearly 8 percent of the Chinese population still lives below the poverty line, and increased employment is stated as the number one priority for China’s economic and societal development.

The debate over whether environmental pollution hurts jobs is by no means a new one. In the 1980s and 1990s, there was heated debate in the United States on the topic. Opponents claimed that the Clean Air Act, the cornerstone of U.S. pollution regulation, would eliminate hundreds of thousands of jobs, rendering the U.S. economy uncompetitive.

A major impediment to stricter pollution regulation in China is the fear of slowing down the economy. Photo: Nicolò Lazzati / Flickr
Improving air quality will improve health and productivity, potentially increasing competitiveness and job creation. Photo: Nicolò Lazzati / Flickr

The point of view that environmental regulation hurts jobs is far from unfounded. Regulation imposes real costs on industry, potentially increasing the cost of production and decreasing competiveness, possibly leading to a decline in production and subsequent loss of jobs. However, an argument can also be made that the benefits of environmental regulation, such as improved air quality, will lead to increased employment overall. For example, poor air quality is known to lead to higher rates of sickness, and sick days, in a population. Improving air quality will improve health and productivity, potentially increasing competitiveness and job creation. In addition, the pollution control sector often generates higher quality service jobs that can be more numerous than the jobs eliminated in extractive and manufacturing sectors.

So what are the employment impacts of environmental regulation? To answer this question, we turned to economic theory. Of the key research we surveyed, one paper found a negative impact, three found a positive impact and four no impact at all. In our paper we present a simple economic model that demonstrates that environmental regulation can positively impact jobs.

Economic theory alone provides limited conclusions on the employment impact of pollution control regulations. We also turn to past experiences. In the 1970s Los Angeles was experiencing similar problems with smog compared to Beijing. On some days the smog would be so thick that parents kept children out of school and elderly complained of shortness of breath and throbbing headaches.

To tackle this problem, industry in the South Coast Basin was subjected to two levels of regulation, the federal Clean Air Act and stricter local regulation by the California Air Resources Board. If regulation in fact kills jobs, we would expect to see a decrease in jobs in the South Coast Basin compared to the surrounding states. This has not been the case, partially explained by the regulated industries’ low employment base prior to regulation.

More surprisingly, the Clean Air Act, which required a 10-million-ton reduction in sulfur dioxide, has had no significant impact on jobs in coal mining nationwide. The industry has experienced significant job loss since the 1990s; however, the vast majority of these losses are due to increased productivity. Of the 100,000 jobs lost to the mining industry from 1990 to 2005, only 4,100 can be attributed to environmental regulations.

To examine employment effects on a macro level, we examined energy efficiency regulation in the state of California. Here a shift in household expenditure from energy towards other goods and services led to a job increase, because energy is less labor intensive than most other goods and services. Generally the service economy is much more labor intensive than the primary sector, which includes energy. Since environmentally benign sectors are more labor intensive than the regulated industries, regulation should increase employment. This is one of the key lessons from our studies: Regulations targeted at industries with low labor intensity would likely have a negligible or beneficial impact on employment.

The Chinese coal industry is a large employer; however, it has recently gone through a spurt of productivity increases, decreasing labor intensity. Any subsequent job loss in the industry resulting from environmental regulation should be small. A shift in spending away from energy towards expenditure on services would likely increase employment. To measure this, we looked at the ratio of labor intensity in the tertiary (service) sector compared to the primary sector, and found that it is a multiple of 3. Shifting expenditure from the primary sector to services, while maintaining GDP levels, ought to triple the amount of jobs on an economy-wide level.

Pollution control can support job growth, if there is low labor intensity in the targeted sectors and the regulation redistributes spending to more labor-intensive industries. China’s transition to an economy with a larger service industry will be key and can help facilitate a joint strategy of stringent pollution control combined with job growth.

The paper appears in the journal Environment, Development and Sustainability.

The Earth Institute’s Research Program on Sustainability Policy and Management will hold a discussion April 14 with the China Center for International Economic Exchanges on “China’s Green Growth: Balancing Economic Development and Sustainability.” The event will be held at the Union Theological Seminary, Refectory (121st & Broadway, 2nd floor), from 6-7:30 p.m., followed by a reception. For details and to register, go here.

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