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

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  • William Walker

Abstract

New environmental regulations lead to a rearrangement of production away from polluting industries, and workers in those industries are adversely affected. This paper 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. The focus on workers rather than industries as the unit of analysis allows me to examine previously unobserved economic outcomes such as non-employment and long run earnings losses from job transitions, both of which are critical to understanding the reallocative costs associated with these policies. Using 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 $9 billion inforegone earnings for the years after the change in policy. Most of these costs are driven by non-employment and lower earnings in future employment, while earnings of workers who remain with their firm change little. Relative to the estimated benefits of the 1990 CAAA, these one-time transitional costs are small. However, the estimated costs far exceed the workforce compensation policies designed to mitigate some of these earnings losses.

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File URL: ftp://ftp2.census.gov/ces/wp/2012/CES-WP-12-02.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 12-02.

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Length: 54 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:cen:wpaper:12-02

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. Ashournia, Damoun & Munch, Jakob R. & Nguyen, Daniel, 2014. "The Impact of Chinese Import Penetration on Danish Firms and Workers," IZA Discussion Papers 8166, Institute for the Study of Labor (IZA).
  5. 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.
  6. 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.
  7. 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," NBER Working Papers 18700, National Bureau of Economic Research, Inc.
  8. 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, vol. 51(4), pages 1007-62, December.
  9. 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.
  10. 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.
  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. 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.
  13. 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.

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