Common Tragedies

Thoughts on Environmental Economics

The “make-work bias” meets energy policy

Posted by Rich Sweeney on November 13, 2007

Last week I attended an Environmental and Energy Study Institute (EESI) event at the Hart building on “Green Collar Jobs”. The event was co-sponsored by the American Solar Energy Society, which was presenting its study on how many jobs energy efficiency and renewables would create in the US over the next 25 years. The answer? 40 million new jobs by 2030.

Now this “study” was about as rigorous as the Power in the Public Interest electricity deregulation paper the NYTimes cited last week. When I saw the title for the talk, I naively assumed that said study would involve some sort of macro model, with efficiency and renewables supply curves and labor explicitly defined as a factor input. Clearly, as the tone of this post indicates, I was mistaken. Yet what I really want to talk about today is not the shortcomings of the ASES study, but the fact that nobody at the briefing cared. Among the attendees were Senate Energy Committee member Ken Salazar and Washington Director for the State of Ohio Drew McKracken. Despite the glaring lack of substance or specificity, both felt compelled to loudly tout the study as justification for the renewables and efficiency spending bills currently being pushed through Congress. In The Myth of the Rational Voter, Bryan Caplan lays out four systematically biased beliefs held by the non-economist voting public. One of these, which Caplan dubs the “make-work bias”, refers to the populace’s tendency to underestimate the economic benefits of conserving labor. In the polls, this bias often manifests itself in voter’s overemphasis on jobs rather than welfare. The result is a suboptimal welfare outcome.

Now I’m not saying that this is exactly the same thing, but I’m becoming increasingly concerned about labor hijacking the energy policy debate. I thought that the primary motives for promoting renewables and energy efficiency in the US were to reduce GHG emissions and alleviate our dependence on foreign oil. Yet if you go to an energy event on the Hill or read the energy platforms of the leading presidential candidates you’d think the main concern was about jobs. Worst of all is the fact that, as far as I know, there hasn’t even been a credible study of the employment effects of these policies. While it seems straightforward that the large expansion of the renewables and efficiency sectors should increase their employment, its not at all clear whether this creates new jobs or simply displaces labor from other sectors. (Amusingly, accountants and bookkeepers were by far the largest component of the ASES jobs from renewables estimates.)

Ok, I’m sort of running out of steam here, so I’ll just summarize my main points:

1) Energy and environmental policies should focus primarily on energy and environmental objectives. Especially given the severity of our current climate change and foriegn policy concerns. At the EESI event I honestly heard a woman get up an ask how the ASES study had a accounted for prison inmates. Letting the word “green” precede every partisan action item confuses the issues and significantly limits our ability to address the two real concerns at hand.

2) To read one of Thomas Friedman’s lighter columns or listen to John Edwards’ energy stump speech, you’d think the labor implications of the climate change debate were perfectly clear. As far as I can tell they’re not. Does anyone want to co-author a paper?

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5 Responses to “The “make-work bias” meets energy policy”

  1. Daniel Hall said

    this bias often manifests itself in voter’s overemphasis on jobs rather than welfare

    Or, put another way, the bias is exhibited in the public’s confusion about the fact that productivity gains are good. Caplan’s most iconic example concerned agriculture. You want to create jobs? Just ban all modern farming equipment and force everyone to grow their own food. Rather than 5 people being able to grow the food for every 100, it will take 90. (I don’t remember the exact numbers, but you get the thrust.) This would create millions of jobs, but I don’t see many voters getting behind this one.

  2. Evan Herrnstadt said

    For one second, let’s set aside green service jobs, like installing insulation.

    Note that although demand for low carbon/efficient products would increase, the actual number of manufacturing jobs created also depends on the carbon intensity of the manufacturing process. Absent a subsidy or tax break, building a wind turbine is going to become more expensive, assuming that the factory uses any sort of fuelstock or electricity in the production process. Although the report mentions the possibility that, e.g., solar panels are built with coal energy, I was unable to tell how (if at all) that fact combined with a carbon price was incorporated into the analysis. This is troubling, as such jobs are counted as indirect RE&EE jobs, which appear to outnumber direct RE&EE jobs by 5 to 2.

  3. Jeff Brown said

    The folks over at ACEEE did a study on energy efficiency and job creation a while back (using an economic model), and a key finding was:
    “The positive employment and income results are due primarily to the relatively low labor intensity of the energy sectors (coal, oil and gas extraction, fuel refining, and electric and gas utilities) compared to the economy as a whole. Conserving energy reduces the energy bills paid by consumers and businesses, thereby enabling greater purchase of non-energy goods, equipment, and services. The result is a shift of economic activity away from energy supply industries and towards sectors of the economy which employ more workers per dollar received. Regarding the different effects, less than 10% of the net jobs created are associated with direct investment in efficiency measures while more than 90% are associated with energy bill savings and respending of those savings.”
    For more, see http://www.aceee.org/pubs/ed922.htm

    Now this paper specifically addresses energy efficiency, not renewables or climate mitigation policies more broadly. As energy bill savings are the main driver of the new jobs created by the high EE policy, and these savings are specific to EE policy (renewables are more expensive now and so would increase energy bills), this finding doesn’t necessarily apply to renewables and climate mitigation policies.

  4. [...] report on renewables and efficiency have started to flood in. The issue is summarized well at Common Tragedies: I thought that the primary motives for promoting renewables and energy efficiency in the US were [...]

  5. [...] should be fewer people employed in the energy sector, or at least I would hope so.  Even under flawed analysis of how many jobs a renewable energy strategy would create, “accountants and [...]

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