Regulation and jobs


There is a debate in the United States at present as to whether government regulation on net creates or destroys jobs. See, for example, here. This is, of course, a completely silly debate.

To see why, let’s consider a simple regulation. How about the laws against murder? These laws clearly reduce employment opportunities. For example, if someone wishes to hang out their shingle as a ‘professional assassin’ then they are likely to violate the anti-murder regulations. They may draw attention from the relevant regulatory authorities and be punished. In the absence of this interference by regulators in the market, we could have a thriving trade in assassination. There could be an Assassins’ Guild (with apologies to Terry Pratchett readers) with the associated jobs. (Murdering, body disposal, weapons production and training, private security to protect against assassination, and so on).

Aaaahhhhh, I hear you say. But what about the jobs created by the anti-murder regulations? After all, we need a police force to ensure the regulations are being satisfied. And think of all the lawyers that are employed due to our anti-murder regulations. Indeed, a significant part of our legal system – with associated jobs – would not have a function in the absence of anti-murder regulation.

So are our laws prohibiting merger job creating an job reducing?

As I’ve already said, this is a silly question. Regulation is about improving the functioning of our economy and our society. For example, antipollution laws (like anti-murder laws) are about internalising a negative economic externality. Whether they are good or bad laws has nothing to do with jobs.

This point is eventually made in the Washington Post article – at the end of the third page. It quotes Roger Noll, a leading economist at Stanford University.

“The notion that we should deregulate everything because we have a recession is completely wrongheaded,” he said. “Whether a regulation is a good or bad idea is not a function of employment in the industry being regulated.

“The right question is: On balance, does our society benefit?”

It is sad that it takes three pages of silliness to get to the correct argument.

12 Responses to "Regulation and jobs"
  1. I am surprised a bit by Stephen’s example.  In the absence of regulations against murder, I think there would be natural private laws that emerge.  If Stephen murders my brother I would bring him before a private court.  If the court made a decision that was socially unpopular, then the judge would quickly go out of business, to the benefit of her competitors.

  2. This only works if the private court used force to enforce their law. And, where adequate laws are not in place, bodies often evolve to create these laws. This is called organised crime! But you seem to miss the main point – the argument about jobs and regulation being tied is silly. Would we want to argue for or against ‘murder laws’ on the basis of their effect on jobs?

  3. Sorry, got off the point. 

    So you (and Roger Noll) are saying that regulation ought not be considered in the context of effects on employment.  I think that’s right.

    However, I suppose job changes is an inevitable by-product because the regulation would generally lead to a reallocation of resources (perhaps away from better uses) – there are so many compliance procedures writers these days that it makes the mind boggle.  In the absence of pervasive regulatory regimes these people might be more productively employed elsewhere.

    In terms of Roger Noll’s quote about whether there is a benefit to society, that is really tough to answer.  Indeed, where government becomes ‘large’ it creates incentives for organised lobbies to rent-seek. The regulations that result are almost inavariably to the detriment of most individuals (or society), regardless of whether it transfers labour into some chosen area. I suppose I am getting at the slippery-slope argument.

    Maybe the right question is: Do you trust government (of any persuasion) to consistently bring about regulatory regimes that reflect some overall view of a nation’s individuals. My view on this is no I don’t and labour reallocation is just a side issue.

    P.S. I can’t always tell the difference between organised crime and government (however installed), but I don’t mean to get off-topic, again!

  4. Esp Ghia, it’s about whether we trust the government or not, government is the only institution (except for social norms/culture) that can solve coordination problems.

  5. DavidN, as far as I can tell governments have a long and sordid history of exacerbating any failure re co-ordination.  Governments create new, different sets of of incentives that motivate sentient beings. If you want see the failure of large-scale government efforts just look at the war on…insert anything here. So does society benefit from a set of regulations about “x”, which had the original aim of addressing problem “y”? It is increasingly difficult to answer in the affirmative, without pointing to the creation of a whole new set of problems that flowed from the regulation.  Think law of unintended consequences…sometimes the cure is worse than the disease.  Relating this directly to jobs, just think about minimum wage rules and what a disater price-fixing is for the low/unskilled segment of the labour market – it hurts those the most that it sets out to protect.  Abstracting from the context of jobs impact, I am trying to think of one situation where price-fixing was a net positive to society – one doesn’t immediately spring to mind.

  6. You can call it family, corporation, organised crime, sports team but whatever you call it they are all special cases of the generic type of institution called ‘government’.

    Some governments go to war, some sports team are good at losing and some corporations are terrible at making profit but like it or not ‘governments’ can solve coordination failure where markets are incapable of (e.g. because of incomplete contracts).

  7. Of course even if regulations create jobs, these jobs are unlikely to be productive and therefore represent a net cost to the economy.  If a pollution regulation requires an office of 10 people to administer the scheme then this takes away 10 workers from other productive jobs.  Sure in times of high unemployment two of these may have been unemployed, but that still leaves 8 who weren’t.  All 10 get a salary, but that’s just out of the pocket of all other taxpayers, there’s no actual wealth creation.
    It would be far better for the economy if the scheme were administered by unpaid robots, allowing those 8 employed individuals continuing to produce something of value by private markets.

  8. I believe it is a question of too much regulation or not. But then one must ask “what is too much”. Too little regulation DOES affect productivity as much as too much. So if polluters are not regulated sufficiently there will be more ill health which obviously subtracts from productivity (even though it may create jobs for health care workers, it at least increases insurance costs to employers), as well as losses in agriculture. Does it make sense to say that industry can hire more workers when they are allowed to pollute more because their expenses are lower ? No not in an overall sense. This is just an argument from economics it says nothing about the human (quality of life) cost. But wouldn’t it be better if people could spend more of their money on nice things than on health care ?

  9. ut not all jobs are the same.

    So if our target is unclearly defined as just being “jobs” than a nation of engineers and doctors is equivalent to a nation of coal miners and call centers.

    Similarly, not all regulations are the same. Regulations that ban thalidomide being routinely given to pregnant mothers because of extremely high proportions of birth defects are not the same that state that there are 18 different sizes of peas that all need to be clearly graded and labeled.

    And these are just two axes of about 9 or 10 in a multivariate grid that you need before you can coherently address these topics on a sustainable basis and not create more problems than you have “solved”.

    You need to start with core principles; everyone has an inalienable right to shelter, health care, education and clean water.

    “Regulation is about improving the functioning of our economy and our society. … Whether they are good or bad laws has nothing to do with jobs.”
    Not sure about this. Regulations are indeed about improving the functioning of society, and we should judge them based on their net effect on society taking every effect into account, of which one would be any effect on employment.
    Of course, the effect on jobs is not the primary or only consideration; it is one consideration among many. And we can’t simply assume that the effect on employment will be negative. But neither of these is to say it shouldn’t be considered at all.
    The question will be which effect do I value more: the (eg) reduction in pollution or any jobs that will be lost?  In the case of murder, considerations of ‘justice’ etc may mean that pretty much any negative effect on employment is an acceptable cost, but we still need to ask the question about how much we value each side of the equation.

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