The Social Value of Job Loss and Its Effect on the Costs of U.S. Environmental Regulations

Abstract

Job loss is typically not valued in benefit–cost analyses of environmental regulations. But empirical evidence suggests that involuntary job loss results in large social costs, particularly when local unemployment is high. This article presents estimates of the social costs of job loss in the United States, based on estimates of how local labor markets respond to job changes. These estimated social costs have a present value per job lost in the hundreds of thousands of dollars. However, these social costs are far less than the earnings associated with the lost jobs, because of labor market adjustments as well as some offsets from the value of increased non-work time. An examination of major U.S. environmental regulations suggests that job losses will usually add only modestly to overall regulatory costs. However, if the magnitude of a regulation’s benefits and costs are close in monetary terms, then accounting for job loss could tip the regulatory decision. It is also important for regulatory analyses to examine the potential magnitude of gross job loss, particularly in high unemployment areas.