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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.

Suggested Citation

  • William Walker, 2012. "The Transitional Costs of Sectoral Reallocation: Evidence from the Clean Air Act and the Workforce," Working Papers 12-02, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:12-02
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    File URL: https://www2.census.gov/ces/wp/2012/CES-WP-12-02.pdf
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    References listed on IDEAS

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    1. Dimitra Petropoulou, 2007. "Information Costs, Networks and Intermediation in International Trade," Economics Series Working Papers 370, University of Oxford, Department of Economics.
    2. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1319-1374.
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    4. James E. Rauch & Joel Watson, 2004. "Network Intermediaries in International Trade," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 69-93, March.
    5. Emek Basker & Pham Hoang Van, 2007. "Wal-Mart as Catalyst to U.S.-China Trade," Working Papers 0710, Department of Economics, University of Missouri.
    6. Akerman, Anders, 2010. "A Theory on the Role of Wholesalers in International Trade based on Economies of Scope," Research Papers in Economics 2010:1, Stockholm University, Department of Economics.
    7. Emek Basker & Pham Hoang Van, 2010. "Imports "Я" Us: Retail Chains as Platforms for Developing-Country Imports," American Economic Review, American Economic Association, pages 414-418.
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    More about this item

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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