August 22, 2011

Never Let the Facts Get in the Way of a Good Story: New BLS Data is Latest to Disprove Conservative Claims of "Job-Killing Regulations"

The current anti-regulatory mantra of Republican legislators (e.g., Cantor, Boehner, Issa) and conservative think tanks (e.g., CEI and Heritage) is that regulation is a “job-killer.” And a top plank of Republicans’ job agenda when they return from the summer recess is to limit regulations. There is just one problem with this rhetoric. It is not backed up by the data, including the latest Department of Labor study on the reasons why employers lay off workers.

Economic studies indicate that regulation is not a drag on employment and may actually increase the number of jobs. Bezdek, Wendling and Di Perna found that “EP [environmental protection], economic growth, and jobs creation are complementary and compatible: Investments in EP create jobs and displace jobs, but the net effect on employment is positive.” (Quoted here, p. 15). Likewise, when Richard Morgenstern and his colleagues studied the impact of EPA regulation in four large polluting industries, they found that there was an increase in jobs in two industries (petroleum and plastics) and no statistically measurable impact on jobs in the other two industries (pulp and paper and steel). Consider too that Stephen Meyer compared the economic performance of states with strong environmental regulation to states with weaker regulations after the 1990-1991 recession. He found that “[e]nvironmentally stronger states [did] not experience more precipitous declines in employment during the recession. Nor do they demonstrate a higher rate of business failure.”

A little-noticed report from the Bureau of Labor Statistics (BLS) released on August 10 throws more cold water on the claim regulation kills off jobs. The BLS data examines the reasons companies give for laying off workers when the layoffs involve 50 or more workers who are laid off for more than 30 days (“extended mass layoffs”). The BLS data says that in the second quarter of 2011, 261,346 workers were laid off in such events. Of those, 690 of the separations were attributed by the employers to “Governmental regulations / intervention.” That’s .26% of the separations.

For the years 2007-2009, regulation was the attributed cause of an average of 0.3% of the mass layoffs (see here at p. 20).  The proportion of these events attributed to regulation seems to be remarkably stable across two administrations and vastly different economic conditions. Although the survey does not measure the reasons why companies lay off people outside of the mass layoff context, it is striking that 99.7% of mass layoffs are due to reasons other than government regulation. 

Not surprisingly, the anti-regulators don’t want to talk about how the lack of regulation of Wall Street is responsible for the current recession and the loss of eight million jobs (p. 2). Nor do they want to talk about the economic data that disprove their claims that regulation causes job losses. The best that they can do is to claim that businesses, worried about future regulatory requirements, will hold off hiring workers (e.g., Cantor). This is a convenient claim since the business community will be more than happy to blame regulation for any reason that will serve their interests.   In any case, this is again a matter of ignoring the facts. Numerous academic studies show that that the state of the economy is the dominant factor determining business investment. Business is reluctant to invest in the future because the economy is lousy and it is unclear when it is going to improve.

Millions of Americans are upset over the nation’s current economic performance, and the anti-regulatory campaigners in Congress seek to trade on this unease by blaming our economic woes on regulation. While this serves their interest in serving as handmaidens for the business community, it does not serve the nation’s interests.   As the Wall Street debacle illustrates, sensible regulation is a necessary part of our economic life. The burden is on the anti-regulators to prove regulation is a job-killer. They have failed to do so.

Sidney Shapiro, CPR Member Scholar; Fletcher Chair in Admin Law, Wake Forest University School of Law. Bio.

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