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- i CHAPTER 1 3 . EMPLOYMENT IMPACT ANALYSIS

TABLE OF CONTENTS

13.1 INTRODUCTION ......................................................................................................... 13-1

13.2 METHODOLOGY ........................................................................................................ 13-113-1 CHAPTER 13. EMPLOYMENT IMPACT ANALYSIS

13.1 INTRODUCTION

The U.S. Department of Energy’s (DOE’s) employment impact analysis is designed to estimate indirect national job creation or elimination resulting from possible standards, due to reallocation of the associated expenditures for purchasing and operating furn aces. Job increases or decreases reported in this chapter are separate from the direct manufacturing sector employment impacts reported in chapter 12 and reflect the employment impact of efficiency standards on all other sectors of the economy.

DOE ex pects energy conservation standards to decrease energy consumption and, therefore, to reduce energy expenditures. The savings in energy expenditures may be spent on new investment or not at all ( i.e., they may remain “saved”). The standards may increase the purchase price of appliances, including the retail price plus sales tax, and increase installation

costs.

Using an input/output econometric model of the U.S. economy, this analysis estimates

the short- term effect of these expenditure impacts on net economic output and employment. DOE intends this analysis to quantify the indirect employment impacts of these expenditure changes. It evaluates direct employment impacts at manufacturers’ facilities in the manufacturer impact analysis (see c hapter 1 2 ).

13.2 METHODOLOGY

The Department base s its analysis on an input/output model of the U.S. economy that estimates the effects of standards on major sectors of the economy related to buildings and the net impact of standards on jobs. The Pacific Northwest National Laboratory developed the

model, ImSE T 3.1.1 2 ( Im pact of S ector E nergy Technologies), as a successor to ImB uild 3 , a special -purpose version of the IMPLAN 4 national in put/output model. Im SET estimates the employment and income effects of building energy technologies. In comparison with simple economic multiplier approaches, Im SET allows for a more complete and automated analysis of the economic impacts of energy efficie ncy investments in buildings.

In an input/output model, the level of employment in an economy is determined by the relationship of different sectors of the economy and the spending flows among them. Different sectors have different levels of labor intensity, and changes in the level of spending ( e.g., due to the effects of an efficiency standard) in one sector of the economy will affect flows in other sectors, which affect the overall level of employment.

ImSET uses a 187-sector model of the national economy to predict the economic effects of residential and commercial building technologies. ImSET collects estimates of initial13-2 investments, energy savings, and economic activity associated with spending the savings resulting from standards ( e.g., changes i n final demand in personal consumption, business investment and spending, and government spending). It provides overall estimates of the change in national output for each input-output sector. The model applies estimates of employment and wage income per d ollar of economic output for each sector and calculates impacts on national employment and wage income.

Energy efficiency technology primarily affects the U.S. economy along three spending pathways. First, general investment funds are diverted to sectors that manufacture, install, and maintain energy

- efficient appliances. The increased cost of appliances leads to higher employment in the appliance manufacturing sectors and lower employment in other economic sectors. Second, commercial firm and residential spending are redirected from utilities toward firms that supply production inputs. Third, electric utility sector investment funds are released for use in other sectors of the economy. When consumers use less energy, electric utilities experience relative reductions in demand, which leads to reductions in utility sector investment and employment.

DOE notes that ImSET is not a general equilibrium forecasting model and understands the uncertainties involved in projecting employment impacts, especially chan ges in the later years of the analysis. 1 Because ImSET does not incorporate price changes, the employment effects predicted by ImSET would over- estimate the magnitude of actual job impacts over the long run for this rule. As input/output models do not allow prices to bring markets into equilibrium, they are best used for a short-run analysis. DOE, therefore, includes a qualita tive discussion of how labor markets are likely to respond in the longer term. In future rulemakings, DOE may consider the use of other modeling approaches for examining long-run employment impacts

.