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The Transitional Costs of Sectoral Reallocation: Evidence From the Clean Air Act and the Workforce

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  • W. Reed Walker

Abstract

This article uses linked worker-firm data in the United States to estimate the transitional costs associated with reallocating workers from newly regulated industries to other sectors of the economy in the context of new environmental regulations. The focus on workers rather than industries as the unit of analysis allows me to examine previously unobserved economic outcomes such as nonemployment and long-run earnings losses from job transitions, both of which are critical to understanding the reallocative costs associated with these policies. Using plant-level panel variation induced by the 1990 Clean Air Act Amendments (CAAA), I find that the reallocative costs of environmental policy are significant. Workers in newly regulated plants experienced, in aggregate, more than $5.4 billion in forgone earnings for the years after the change in policy. Most of these costs are driven by nonemployment and lower earnings in future employment, highlighting the importance of longitudinal data for characterizing the costs and consequences of labor market adjustment. Relative to the estimated benefits of the 1990 CAAA, these one-time transitional costs are small. JEL Codes: Q50, H41, R11. Copyright 2013, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 128 (2013)
Issue (Month): 4 ()
Pages: 1787-1835

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Handle: RePEc:oup:qjecon:v:128:y:2013:i:4:p:1787-1835

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Cited by:
  1. Damoun Ashournia & Jakob Munch & Daniel Nguyen, 2014. "The Impact of Chinese Import Penetration on Danish Firms and Workers," Economics Series Working Papers, University of Oxford, Department of Economics 703, University of Oxford, Department of Economics.
  2. Nicolai V. Kuminoff & V. Kerry Smith & Christopher Timmins, 2013. "The New Economics of Equilibrium Sorting and Policy Evaluation Using Housing Markets," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 51(4), pages 1007-62, December.
  3. Michael Greenstone & John A. List & Chad Syverson, 2012. "The Effects of Environmental Regulation on the Competitiveness of U.S. Manufacturing," NBER Working Papers 18392, National Bureau of Economic Research, Inc.
  4. David H. Autor & David Dorn & Gordon H. Hanson & Jae Song, 2013. "Trade Adjustment: Worker Level Evidence," NBER Working Papers 19226, National Bureau of Economic Research, Inc.
  5. Adam Isen & Maya Rossin-Slater & W. Reed Walker, 2013. "Every Breath You Take, Every Dollar You'll Make: The Long-Term Consequences of the Clean Air Act of 1970," Working Papers, Center for Economic Studies, U.S. Census Bureau 13-52, Center for Economic Studies, U.S. Census Bureau.
  6. Mette Foged & Giovanni Peri, 2013. "Immigrants and Native Workers: New Analysis Using Longitudinal Employer-Employee Data," NBER Working Papers 19315, National Bureau of Economic Research, Inc.
  7. Timothy J. Bartik, 2013. "Social Costs of Jobs Lost Due to Environmental Regulations," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 13-193, W.E. Upjohn Institute for Employment Research.
  8. Gibson, Matthew, 2014. "Dirty and perverse: regulation-induced pollution substitution," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt6tn7t0wv, Department of Economics, UC San Diego.
  9. Rema Hanna & Paulina Oliva, 2011. "The Effect of Pollution on Labor Supply: Evidence from a Natural Experiment in Mexico City," NBER Working Papers 17302, National Bureau of Economic Research, Inc.
  10. Janet Currie & Lucas Davis & Michael Greenstone & Reed Walker, 2013. "Do Housing Prices Reflect Environmental Health Risks? Evidence From More Than 1600 Toxic Plant Openings And Closings," Working Papers, Center for Economic Studies, U.S. Census Bureau 13-14, Center for Economic Studies, U.S. Census Bureau.
  11. Kim, Kijin, 2013. "The Effects of the Clean Air Act on Local Industrial Wages," 6th Annual CRAE, April 5-6, 2013, Columbus, Ohio, Midwest Graduate Student Conference on Regional and Applied Economics (CRAE), The Ohio State University, Department of Agricultural, Environmental and 147489, Midwest Graduate Student Conference on Regional and Applied Economics (CRAE), The Ohio State University, Department of Agricultural, Environmental and Development Economics.
  12. Kahn, Matthew E. & Mansur, Erin T., 2013. "Do local energy prices and regulation affect the geographic concentration of employment?," Journal of Public Economics, Elsevier, Elsevier, vol. 101(C), pages 105-114.
  13. W. Reed Walker, 2011. "Environmental Regulation and Labor Reallocation: Evidence from the Clean Air Act," American Economic Review, American Economic Association, American Economic Association, vol. 101(3), pages 442-47, May.

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