Should Benefit–Cost Methods Take Account of High Unemployment? Symposium Introduction

Conventional methods in benefit–cost analysis maintain that the effects of new environmental regulations should focus on long run equilibria with and without the policies being evaluated. This article introduces a symposium that considers how the employment effects of environmental regulations might be included in benefit–cost analyses. Three lessons emerge from the symposium. First, the empirical evidence to date indicates that it is difficult to measure the net employment effects of environmental regulations. The record is mixed, with support for effects at the plant level. The record is less clear for the reduced form estimates using more aggregate data. Second, it is possible to construct an ex post "analysis chain" that allows for estimation of the adjustment costs associated with a job loss. These estimates depend importantly on the assumptions made in the construction of the counterfactual baseline employment history and the outcomes after job losses. The ways in which households might adapt to a job loss are especially important for measuring adjustment costs. Finally, economy-wide evaluations of the impact of environmental regulations require a new framework to characterize the role of regulations and the associated changes in environmental quality for steady state responses to policy.