TCS Daily


Why Are Workers Earning Less Than They Used To?

By Craig S. Marxsen - December 14, 2005 12:00 AM

For the past 30 years, environmental regulations have been largely well received by the American public, a reflection of the fact that many now consider themselves strongly pro-environment. Other manifestations of the "greening" of American attitudes surround us: schools give Earth Day as much attention as many of our longest-lived holidays; corporations market their products as good for the environment; and politicians say that their policies are good for both jobs and the environment.

One reason for this public opinion sea-change is that the costs of environmental regulation have largely remained hidden from view. In fact, decades of "green" regs have significantly dampened the growth of the American worker's real wages. To see why, it is helpful to review some economic history.

Economists have noted a slowdown in the growth of output in the U.S. economy from the early 1970s to the mid 1990s. After 1973, when the cool-off began, the annual increase in real GDP fell from 3.6 percent per year to 2.8 percent. In human terms, this meant that millions of Americans had to delay the purchase of a new home or car, buy cheaper quality clothing, and save less of their incomes than they would have had the economy remained vibrant. For those at the margins of our economy, slower growth meant a precarious existence between the Scylla of a dead-end job and the Charybdis of the welfare state.

According to the 2005 Economic Report of the President, the growth of real output declined because annual labor-productivity growth slowed from 2.5 percent (prior to 1973) to 1.5 percent (from 1973 to 1995). Consequently, real weekly earnings -- what workers took home in inflation-adjusted dollars -- actually decreased during much of the latter period.

Although the oil-supply shocks, stagflation and price controls of the 1970s have often been blamed for inaugurating the economic slowdown, environmental regulations -- particularly air- and water-pollution compliance -- also took a heavy toll. In a study published in the 1995 Yale Journal on Regulation, economist James C. Robinson (currently with U. C. Berkeley's School of Public Health) found that between 1974 and 1986, manufacturers' direct costs of complying with environmental regulations had increased to just over one percent of the value of manufactured goods. Furthermore, multifactor productivity -- the efficiency of labor, machinery, and other inputs working together -- had fallen about 11.4 percent short of where it would have been without the edicts of the Environmental Protection Agency (EPA).

It's not hard to understand how this happened. The early 1970s witnessed an environmental awakening -- some of it visionary, but much of it myopic. Along with Earth Day and popular campaigns to promote conservation came books such as The Limits to Growth, whose computer printouts gave a scientific veneer to the text's prophesies of economic doom and massive loss of human life from overpopulation and environmental degradation.

The EPA, created in 1970, was not immune to the influence of the environmental doomsayers. Congress gave the agency broad discretionary powers but said little about how it should establish environmental priorities.

Productivity growth accelerated in the late 1990s, but only in six economic sectors -- computer manufacturing, semiconductors, telecommunications, retail, wholesale, and securities -- industries less affected by environmental regulation than others. The other 53 sectors, taken as a group, had almost no productivity growth from 1995 to 2000. After 2001, U.S. productivity growth finally experienced a broad-based resurgence, perhaps because the Bush administration made good on its pledge to ease restrictions that impede manufacturing growth.

In response to pressure to reduce environmental compliance costs, the EPA recently selected only 42 regulatory reforms to implement. These reforms were taken from a list of more than 700 suggested by the public, according to an agency official who testified at a congressional hearing on the issue last September. This may seem promising but is insufficient. Lawmakers should require the EPA to explain, case by case, why it rejected the vast majority of reforms suggested by the public. Making the agency more transparent would help make it more accountable, as well as facilitate needed reform. Similarly, state lawmakers should make state-level environmental agencies more transparent.

More importantly, Congress should reduce the EPA's discretionary authority. It empowered the agency at a time when predictions of imminent economic meltdown from resource depletion and deadly pollution faced little skepticism. Those predictions haven't panned out except in one respect: They fertilized a federal bureaucracy that has imposed huge economic costs -- costs that have disproportionately dampened the growth of productivity, and thus workers' earnings.

Craig Marxsen is an associate professor of economics at the University of Nebraska, Kearney, and an adjunct fellow at the Independent Institute. Carl Close is the academic affairs director of the Independent Institute. This article draws from Craig Marxsen's chapter, "Prophecy de Novo: The Nearly Self-Fulfilling Doomsday Forecast," in Re-Thinking Green: Alternatives to Environmental Bureaucracy, ed. by Robert Higgs and Carl P. Close (The Independent Institute, 2005).
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13 Comments

Workers Earning Less Than They Used To? I find that hard to believe.
Workers Earning Less Than They Used To?
I find that hard to believe.
You can buy much more in minimum wage hours now than you could in the 1970s.
And BTW a cleaner environment is a good.
But I do see great harm done by slow/controlled growth policies and excessive zoning that drive up the cost of housing. I think that excessive zoning restrictions are an unintended effect of a policy that was started as an environmental thing but was seized by the owners of existing houses and used to enhance the value of their homes at a cost to those who would have been able to afford a home.

I call BS
According to the US Census Bureau real incomes for households have risen since 1974.

http://www.census.gov/hhes/income/histinc/h01ar.html

Also, this article doesn't mention the costs associated with harming our environment and undervalues environmental regulation as an attempt, flawed as it may be, to allocate that cost appropriately.

Could environmental regulation reform benefit us? It depends on what the reforms are. Is this a good article to promote reform? No, this article is poorly written and uses cherry picked statistics to promote some undefined "reforms".

regulations
After years of California paying 25 to 50 cents a gallon more than the national average, eliminating the botique blends has brought gas down even with the rest of the country. That is one price of regulation. Environmentalists act as if no one cared about the environment before they came along, but the major works were well along, dictated by real science when the politicians got into the act. Often the politicians increase pollution and waste, as when some of their tinkering with fuel lowered milage 15% and had no effect on anything except Parker Daniel Midland's profits.

right so
Precisely, setting a price for a common good is just a way to avoid the "tradegy of the commons". Environmental policies can certainly be improved, but only if you realise that the environment is worth a price and realign policies to fit that perspective.

That growth have slowed in the US due to environmental policies is somewhat hard to belive, it seems far more likely that growth is hamstrung by US regulations, a runaway tort/litigation system and an inability to reform major parts of the economy (hey, even socialistic Sweden has school vouchers that you can bring to a private school, and Social Security was privatised 15 years ago). Even if environmental protection policies are in part to blame, that is only a reason to make the policies more market based.

Congress and Regulatory Agencies
“Congress should reduce the EPA’s discretionary authority.”

Discretion without sufficient checks-and-balances is a formula for abuse of power. Congress endowed the EPA with authority well in excess of its accountability. Congress should rectify this situation by amending the EPA charter:
1) Require that all regulations [REG’s] have an expiration date. The maximum would be 6 years. All existing REG’s would have retroactive expirations dates assigned. This will gradually result in the expiration on REG’s that are not re-approved.
2) Congress should enable a Congressional veto for any REG within 60 days of EPA approval…call it a 60 day “cooling off” period before implementation. A 60% “nay” vote of either chamber would be required to veto an EPA REG. Less than 60% nay or the lack of a vote = Congressional consent.

Regulations can be both costly and useful to the economy and our social order. The key to a “good” regulation is the accurate identification of the cost/benefit tradeoffs, AND the approval of ONLY those REG’s where the benefits exceed the costs. For the most part this judgment is subjective, which means the REG’s have a significant political component. Since politics is Congress’s turf, they should assume more responsibility. And if such a process was effective at the EPA, there are many other regulatory agencies (FDA, FCC, etc…) where expanded checks-and-balances are long overdue.

There are worse wealth killers than the EPA, and they are a whole lot worse at that...
By a mile the two largest destroyers of wealth are the Congress and its spending tax payer money thus robbing legitimate private investors of theirs AND the willing accomplice of the Congress, the Federal Reserve, who over 90 years has thinned out the value of the currency to something like 1/10 of its value at inception.

So given these two wealth killers, all the other ones are small potatoes. I believe that environmental regulation is extremely expensive, but it is small in comparison to the other two.

The worst part of this is that Congress and the Federal Reserve have absolutely no reason to do what they have done. At least on the surface the EPA as flawed as it is has a mission. Congress certainly has exceeded its mission and the Fed has no reason to exist at all.

Fortunately, the citizens of this once great country have insisted that Congress not be too protectionist, allow some freedom to innovate and have markets not regulators set most prices. These are the only things that have made any improvement in the standard of living in the US over the years.

99
billott1 I strongly agree with waht you said.

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D

Virnmintul Regalayshun actually adds to the economy
In fact, the environmental regulations that apparently caused the author and commenters distress are lowering their taxes, consumer costs and medical bills.

For example, a recent White House study concluded that environmental regulations are well worth costs imposed on industry and consumers, resulting in significant public health improvements and other benefits to society. The study found that the health and social benefits of enforcing clean-air regulations over the past decade were five to seven times greater than were the costs of compliance.

Another study looked specifically at the effects of the Clean Air Act from 1970 - 1990. For a total cost of $537 billion, the savings from improved health and worker productivity were a best estimate savings of $22 trillion - an excellent rate of return. An extension of that report evaluated the effects of the Clean Air Act revisions of 1990 and found for a cost of $27 billion, $510 billion was saved. That's good conservative policy.

In the Puget Sound region, the stormwater services trees provide save about $5.9 billion, and their air filtration services are valued at $166 million. Trees in Garland, Texas save the city about $2.8 million annually in stormwater services. Atlanta's trees generate $86 million in annual stormwater services - but tree loss in Atlanta has resulted in a 33 percent increase in runoff during heavy rains. The cost to build facilities to handle this additional water would exceed $1 billion – an unnecessary waste of taxpayer money.

Regulations exist to protect natural areas because ecosystems are capital assets. If managed well, ecosystems yield vital services such as goods production (timber, salmon), life support processes (water filtration, pollination), and life-enriching conditions (beauty, serenity). Oftentimes the importance of ecosystem services is understood only when lost. Fortunately, many decision-makers understand the importance of these services - New York City, for example, bought land in a watershed to filter their water, rather than a much more expensive filtration plant.

BTW, the 'lectricity deregalayshun in CA has raised consumers' energy bills.

Also, in MI the [http://www.macombdaily.com/stories/111505/loc_waterq001.shtml] lack of land-use regalayshun has led to decreasing water quality, which requires folk to pay extra money to get clean water.

Not good, conservative fiscal policy.

Best,

D

more test
Apparently we can't use HTML in comments.
*test*

Workers Earning Less Than They Used To? I don't find that hard to believe.
I have been affected by regulation of EPA, zoning, and taxation. I have a plating shop, started in 1997. EPA increased their standards 3 times in 5 years - we need three years minimum to pay off equipment purchased to meet higher standards. Zoning forced me to get rid of all my excess equipment because it was stored outside, I had no other place to store the equipment. I took some of it home to my ranch, then the rural county made me get rid of that becasue of local zoning ordinances. In the latter time frame I was subject to a state tax audit in which I was assessed taxes based on an industry statistical model because the auditor couldn't find a complete record of my receipts. She complained that I had purchased no material in three years. Once I explained that I received donated excess chemicals from the city and the local state university, she asked for records to assess taxes on these items since they could be considered revenue to me. Go figure that one. I gave up. I moving my business to my home reducing my capacity by 98% and purchasing a second business that has little to no regualtory impact. I must be less productive to make more profit. That's our American socialist economic model.

If Congress,taxes, & regulation is so horrible here in America...
How is it we're far and away the wealthiest nation on the planet? If taxes, regulation, environmental concerns, etc. are so detrimental to our economy then why aren't we among the poorest nations instead of the top economy in the world?

There doesn't seem to be any evidence that I can see that it's hurting us unless being the top dog is a terrible place to be.

Just curious.

reason
Because taxes and regulations in most other countries are even worse.

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