Does a particular green policy create more jobs than it destroys?
A policy is green if it lowers our use of resources and/or environmental impact. If a green policy is also a net creator of jobs, everyone should agree that it is a good policy. It should be implemented. End of story. Green policies which destroy jobs, on the other hand, will require further analysis as to whether the environmental and health benefits outweigh the economic losses. That’s a question which requires putting relative value on various benefits, and cannot be resolved purely by economic reasoning. But the first point bears repeating: if a green policy is also net job creator, everyone should agree that it is a good policy and should be implemented. Identifying those policies is simple.
Which Policies are Net Job Creators?
There are two ways a policy can increase or decrease economic activity and hence number of jobs.
Substituting Labor for Energy or Capital
Image Source: Wikipedia
A basic tenet of microeconomics is that there is a tradeoff between capital, labor and natural resources such as energy in the production function. In particular, you can substitute capital for labor (by mechanization) or labor for capital (by using shovels and picks instead of bulldozers.) Now add energy into the mix: you can substitute fossil energy for either capital or labor to attain the same production.
For example, a hybrid car. It substitutes capital and resources (in the form of an electric motor and batteries) for energy (less fuel consumed to do the same work.) A bus substitutes labor (the bus driver) for capital, resources and energy (lots of cars and fuel consumed.) A green building substitutes labor (better architecture/construction) and some resources (extra insulation) for energy.
From this perspective, any policy that promotes the substitution of labor for energy will create green jobs, since you get more work and less energy consumed. Shifting people out of their cars and onto mass transit will create jobs because there will have to be drivers and people managing the transit system, where before no one was paid to drive. To the extent that the transit system can be paid for out of the reduced fuel costs and car ownership costs of the former drivers turned riders, the number of jobs created will be a pure economic gain.
Which brings us to the other major potential source of jobs from green policies: economic multiplier effects.
To the extent that green policies improve economic efficiency by overcoming the barriers to cost effective green solutions, these policies will result in greater economic activity, and hence more jobs. The strongest critique of “green jobs” initiatives is that they simply shift economic activity from out-of-favor “brown” sectors to more politically correct green ones. Yet when a policy improves economic efficiency, it does not just shift jobs and capital around in the economy: it creates economic activity and jobs.
Not all green policies improve economic efficiency. For example, subsidies for not-yet-economic types of renewable energy like wave power and solar installations may be justifiable on the grounds that they are helping to promote needed future technologies, but they probably come at a net cost to near-term jobs (even if they may create more jobs in the long term by allowing the creation of new types of businesses.)
On the other hand, policies to promote energy efficiency will be strong net creators of jobs, because the cost of energy efficiency is typically only a fraction of the cost of the energy saved. The very existence of opportunities to save significantly on energy bills at modest cost is proof that the energy market is inefficient. In an efficient market, all such opportunities would have already been taken.
After the energy efficiency measure has been installed, the cost savings can be used for useful economic activity, rather than wasted on unneeded fuel. This money will then spur additional activity and stimulate jobs.
Using Fossil Resources to Stimulate Growth is Like Stimulating Growth With Debt
Short term jobs (green or otherwise) should not be the only consideration when forming policy. A short term focus on jobs today can end up doing long term economic harm. For instance, if we spend too much borrowed money to create jobs today, the long term drag on the economy caused by paying back the debt will leave everyone worse off.
Economic growth fueled by the extraction of non-renewable resources — natural gas, oil, coal — is no different from economic growth fueled by debt. When we extract these resources and use them, we increase economic activity today, but their non-renewable nature means that we lose the opportunity to extract and use them tomorrow. Hence, the economic stimulus today comes at the cost of a recession tomorrow, and the future recession will generally be larger than today’s stimulus, since improving technology should allow us to get more benefit from each unit of resource in the future.
Using renewable resources to stimulate growth does not have this problem: Tapping the wind or the sun for energy today does nothing to diminish the wind or sun tomorrow. Hence, to the extent a green job relies on renewable resources and a brown job relies on fossil resources, the green job should be preferred every time, even before taking the environmental benefits into account.
If we only consider job creation, the focus on policy should be on creating jobs and economic activity, with a preference for green jobs, since those impose less of a cost on future economic activity than jobs based on extractive industries.
Green jobs can be created either by substituting labor for energy and capital, or by reducing energy waste so that the money previously wasted on energy can be put to more productive uses. For policy makers who wish to create green jobs, the implications are clear.
Green job programs should focus on two types of opportunities:
The converse is also true: if the goal is to create jobs and stimulate economic activity, subsidies and other policies which encourage the substitution of capital and energy for labor should be ended, especially those subsidies which encourage the extraction of non-renewable resources which only create jobs today at the cost of future jobs.
The most cost effective policies for creating jobs will be those that break down the barriers to the adoption of cost-effective green technologies, especially energy efficiency. Ironically, most energy subsidies have gone into capital intensive sectors such as nuclear and extractive sectors such as oil and gas.
A very cost effective way to produce jobs would then simply be to remove subsidies from fossil fuels and nuclear energy and redirect them towards the most cost effective clean technologies.
Increased support for and promotion of public transit could do much more to reduce our dependence on imported oil than support for domestic natural gas drilling (which will only make us more dependent on imported oil in the future by using up domestic resources sooner) while also creating jobs.
Meanwhile, energy efficiency programs such as cash for caulkers can cost-effectively reduce energy bills and free up money for other sorts of consumption while also creating jobs in the depressed housing sector.
Split 5-4, the Court shut down a class-action lawsuit against Wal-Mart on behalf of as many as 1 million of the chain’s female employees. The Court also ruled — unanimously — that the women could not bring a claim for backpay, as a remedy for discrimination, in a Type 2 class action. The ruling was based primarily on the Court’s interpretation of the commonality requirement for class certification. But there were overtones of constitutional protection for companies facing money claims in a class-action case, ensuring that they must be able to mount a full defense in trying to fend off such claims.
Both opinions were written by Justice Scalia, the Court’s most ardent skeptic about the class-action litigation — a method that allows a large group of individuals, whose own claims may not be worth enough to justify a lawsuit, to join forces as “a class” to pursue grievances that all of them share. Almost certainly the most significant part of the new ruling was the stress it put on the Rule 23 demand that all of those in the class must have a “common” legal claim — in a workplace bias case, each must show, up front, that the bias they claim was targeted at each of them.
The claim that the Wal-Mart women made, as Justice Scalia summarized it, is that Wal-Mart’s “corporate culture” institutionalized a bias against female workers, “making every woman at the company the victim of one common discriminatory practice.” Focusing the case on Rule 23′s requirement of “commonality,” the Court decided that the Wal-Mart women could not meet that standard. They were suing, the opinion said, “about literally millions of employment decisions at once.”
The lawsuit, the Court said further, lacked “some glue holding” its claims together, and that “glue” would be the actual reasons behind each of those decisions. Without that, it added, ” it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.” There is, in this case, too wide a gap between an individual’s workplace bias grievance and the existence of a class of persons suffering exactly the same injury, according to the Court majority.
In order to bridge that gap, Justice Scalia wrote, the Wal-Mart women were obliged to offer “significant proof that Wal-Mart operated under a general policy of discrimination. That is entirely absent here.” Wal-Mart, in fact, has a national policy against sex bias, the opinion noted, and the statistical evidence that the women’s lawyers had offered did not establish that the “corporate culture” implementing that policy translates such a valid policy into illegal discrimination down at the retail store level.
The assessments of alleged bias at the local level, made by the Wal-Mart women’s expert statistician, the Court said, were “worlds away from ‘significant proof’ that Wal-Mart operated under a general policy of discrimination.” And the company’s policy of decentralizing actual workplace decisions on pay and promotions “is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices. It is also a very common and presumptively reasonable way of doing business.”
While Justice Scalia noted that the Court has allowed workplace bias lawsuits where lower-level supervisors used their discretion to engage in biased practices, falling harder on women or minorities, the existence of that kind of case “does not lead to the conclusion that every employee in a company using a system of discretion has such a claim in common.” The Wal-Mart women, he summed up, “have not identified a common mode of exercising discretion that pervades the entire company.”
The opinion added: “In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction.” The evidence offered “falls well short” of proving that, it said.
The overall problem with this lawsuit, Scalia said, quoting the comment of a lower-court judge in the case, was that the Wal-Mart women “have little in common but their sex and this lawsuit.”
For large companies in general, the opinion offers some guidance: the bigger the company, the more varied and decentralized its job practices, the less likely it will have to face a class-action claim. Only workers who have a truly common legal claim may sue as a group, the Court majority made clear — and, even that claim will require rigorous proof that every single worker suffered from exactly the same sort of bias. Sample statistics and anecdotes won’t do.
The dissenters argued that the evidence the women’s lawyers had offered “suggests that gender bias suffused Wal-Mart’s company culture.” Their evidence also indicated that the differences in pay and promotions between women and men workers could only be explained by bias, not “neutral variables,” the dissenters added, leaving the clear impression that the dissenters agreed with that assessment.
Repeatedly, the dissenting opinion offered positive reactions to the women’s claims of how the Wal-Mart “corporate culture” actually worked to bolster discretion at the store level, with that discretion exercised predominantly by men influenced by a culture of discrimination.
The part of the ruling that had the support of all of the Justices declared that the section of Rule 23 that permits class-action requests for injunctions or declaratory rulings does not generally allow claims for money payments, such as backpay in a workplace bias case, unless that kind of remedy is merely incidental to the type of court orders that section authorizes.
Because of the Court’s ruling on the “commonality” question, closing the class-action claim against Wal-Mart, this second part of the decision had little practical impact other than clarifying when a class-action lawsuit could pursue a money remedy. The dissenters said they would have left the Wal-Mart women with a further opportunity to try a different section of Rule 23 for their backpay claim, but the majority had scuttled that by ending the class-action case altogether.
The constitutional overtones that seemed to lie behind some of Justice Scalia’s observations about the need to ensure that companies sued in class-action cases get a full opportunity to defend themselves by challenging each class member’s claims may figure in what the Court now does with another class-action case on its docket. That is the case of Philip Morris USA, Inc., et al., v. Jackson (docket 10-735). That is a case that turns entirely on constitutional questions — a massive class-action lawsuit against the nation’s major cigarette companies in Louisiana state court that resulted in an award of $270 million to a class of former smokers.
Justice Scalia stayed that ruling last September. The Court has been holding the case until it decided the Wal-Mart case. It now is expected to take action on that case; its options include granting the case, or sending it back to Louisiana courts to consider the impact of the Wal-Mart decision. Since the Wal-Mart decision turns mainly upon the meaning of a federal court rule (Rule 23) that does not apply to class-action lawsuits in state court, it is unclear how much specific guidance state courts could take from Monday’s decision.
Here’s one under-discussed element of the proposed American Jobs Act:
“Prohibiting employers from discriminating against unemployed workers when hiring.”
That’s right. The White House wants to make it illegal to refuse to hire someone based on their current employment status, and subject employers to litigation if they are alleged to have done so. The President says it “makes absolutely no sense” not to hire someone who has been out of work for an extended period of time.
Even I can think of a couple of reasons why it would make sense. Companies may want people familiar with the latest trends and conditions in their industry, so that they don’t have to spend money training them up. Is it irrational for a hospital to prefer a nurse from their crosstown rival over a nurse who took five years off and is trying to get back into the field? Some firms may find that narrowing the field of potential hires in advance makes the hiring process more efficient.
This may or may not be a sensible calculation for any particular business. But I’m not prepared to second-guess them or assign malicious intent without a lot more specific information. In any case, if a firm that refuses to consider the unemployed is wrong about the costs and benefits of doing so, they’ll lose business to competitors that recruit differently.
Subjecting companies to the risk of job-discrimination litigation is justifiable in the case of pervasive, historically rooted evils like race or gender bias. But burdening the private sector for this dubious new purpose, in these difficult times, would be a big mistake.
Let’s accept, for the sake of argument, that many employers discriminate against the unemployed in hiring decisions. That doesn’t mean a legal response is required. However much discrimination against the unemployed exists in labor markets, there is no reason to believe it is as pervasive and intractable as was, say, racial discrimination. Among other things there are no formal or informal government sanctions against those who hire the unemployed, no risks of boycotts, and no bands of bigoted thugs threatening to punish those who do not toe the line. Further, making discrimination against the unemployed illegal and unleashing plaintiffs’ lawyers on private firms hardly seems like an effective solution. To the contrary, it would give private firms yet another excuse to avoid hiring in the first place.