Friday, June 16, 2017

Jobs are No Reason to Quit the Paris Climate Agreement

Donald Trump cited “jobs” no fewer than eighteen times in announcing his plans to withdraw from the Paris climate agreement. Nonsense. Jobs are not a good reason—in fact, they are no reason at all—for that decision.

Let’s start with the fact that the US economy doesn’t really need more jobs. We are already awash in jobs. At the macro level, there is no sign that the Paris accord, in place for over a year now, has hurt the steady growth of employment. Neither has it slowed the decline of unemployment, which reached a 16-year low in May. Take a look at the charts. Do you see a sharp break over the last year, since the agreement was signed? I don’t.

To be sure, the Paris agreement is not yet fully in effect, but markets are forward looking. If employers expected the agreement to put the brakes on growth, they would have been holding off on hiring already. What would be the use of taking on workers you are just going to have to lay off as soon as those onerous regulations come into play? If the charts tell us anything about Paris and the job market, it is not how great the employers expect the effects to be, but how small.

But that’s just the macroeconomic perspective. What about low rates of labor force participation and declining labor mobility? Those are real problems, but they have been around, and growing more serious, since long before the Paris agreement was even in the planning stages. Getting out of Paris will not fix them.

Critics are justified in pointing out that although the economy has been creating lots of jobs, the quality of those jobs is not uniformly high. Yet there is little evidence that jobs in coal and other fossil fuel industries, which Trump aims to preserve, are in any way better than those in green energy that are increasingly replacing them. Trump’s problem is not one of keeping or breaking promises, but of making the wrong promises. With a small pivot, instead of promising to put people back to work in the mines, he could help them find new and better work in the energy economy of the future.

Addressing just that point, an article in the Harvard Business Review compares jobs in coal with those in solar power industries. According to an underlying study that the article summarizes, more people already work in solar power than in coal. The solar industry alone—leaving aside wind, biofuels, energy efficiency jobs and the rest—could absorb all workers released by coal as the industry gradually shrinks.

The article makes a job-by-job comparison of skills and wages in the two industries. Yes, some retraining would be required to turn a coal industry operations engineer into a solar manufacturing technician, but many of the basic skills are similar, and the new job would pay 10 percent more. The same goes for lower-skill jobs. Even a janitor in a coal facility would get a 7 percent pay boost if retrained as a low-skill assembly worker in solar.

Unfortunately, moving from job to job and from state to state in search of a job is not always as easy as it should be. However, the barriers to labor mobility are not the fault of the Paris agreement. As I have written at length elsewhere, the fluidity of the labor market is suffering a death of a thousand cuts. A broken social safety net, a stumbling healthcare system, excessive occupational licensing, housing policy, and employer bias against ex-offenders all play their role. Those are the policy areas the administration and Congress should focus on—not the illusory quick fix of leaving the climate agreement.

Take health care, for example. Job-lock caused by employer-sponsored health insurance is one of the most serious barriers to labor mobility. Unless you are perfectly healthy, and sure you are going to stay that way, leaving an employer-sponsored health plan to look for a new job or start your own business is fraught with risks, both medical and financial. Yet the American Health Care Act passed by House Republicans, endorsed by the administration, and pending in the Senate, does nothing to combat job-lock. It leaves the dysfunctional system of employer-linked healthcare coverage virtually untouched. We need to end the $250 billion per year tax subsidy to employer-sponsored plans and put the money into something more flexible and portable.

Eurostyle single payer healthcare? That would work well, if you go by international surveys of the efficiency and effectiveness of national healthcare systems. If single-payer offends your ideology, you might prefer an idea with an impeccable conservative pedigree: universal catastrophic coverage, supplemented by market-friendly health savings accounts.

Disincentives built into our social safety net are another source of barriers to labor mobility. Research by MIT’s David Autor and colleagues has shown that workers displaced by trade and technology shocks often end up receiving social benefits in one form or another. Once they are on food stamps, Medicaid, housing assistance, or other programs, they face a trap. If they get new jobs, the government takes their benefits away. The effective tax rate of benefit reductions can be shockingly high, up to 50 or even 100 percent, with workers close to and just above the poverty line facing the stiffest penalties. In the case of disability benefits, disincentives can be so strong as to turn temporarily displaced workers into permanent labor force dropouts. 

What could be done about the work disincentives of the social safety net? A universal basic income would be one possible solution, but that would be a big step politically. In the meanwhile, Democrats have introduced bills to implement a less radical but quicker fix, through expansion of the Earned Income Tax Credit. But why just Democrats? In the past, Republicans like Paul Ryan and Marco Rubio have also backed the idea. They should renew their support now. An expanded EITC would do a lot more to help displaced coal workers than withdrawal from the Paris climate accord.

I could go on, but you get the point. The “jobs” mantra just doesn’t make sense as a justification for abandoning our commitment to combatting climate change. Not when unemployment is already approaching historic lows. Not when there are better policy responses to jobs lost in a dying coal industry—responses that make it easier for displaced workers to find new and better employment rather than preserving jobs that are no longer economically or environmentally viable. 

Donald Trump needs to wake up and listen to his own words. Speaking on Thursday in the Rose Garden, he said, “My job as president is to do everything within my power . . . to create the economic, regulatory and tax structures that make America the most prosperous and productive country on earth.” Amen. But let’s start with healthcare reform, labor market reforms, and reform of the social safety net, not by abandoning American global leadership on climate change.

A version of this post appeared previously on Milken Institute Review

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