13

- i CHAPTER 13 . EM PLOYMENT IMPACT ANALYSIS

TABLE OF CO NTENTS

13.1 INTRODUCTION

................................ ................................ ................................ ...... 13

- 1 13.2 ASSUMPTIONS

................................ ................................ ................................ ........ 13

- 1 13.3 METHODOLOGY

................................ ................................ ................................ ..... 13

- 1 13.4 SHORT

- TER M RESULTS

................................ ................................ ......................... 13

- 2 13.5 LONG

- TERM RESULTS

................................ ................................ ........................... 13

- 3

LIST OF TABLES

Table 13.4.1 Net National Short

- term Change in Employment (1,000 jobs)

......................... 13

- 313

- 1 CHAPTER 13. EMPLOYMENT IMPACT AN ALYSIS

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 dishwashers.

13.2 ASSUMPTIONS
DOE expects 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 ImSET, an input/output econometric model of the U.S. economy, this analysis estimated the short

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

DOE notes that ImSET is not a general equilibrium forecasting model and acknowledges the uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. 1 Because Im SET does not incorporate price changes, the employment effects predicted by ImSET would overestimate the magnitude of actual job impacts over the long run for this rule. Since input/output models do not allow prices to bring markets into equilibrium, they are best used for a short

- run analysis. We therefore include a qualitative discussion of how labor markets are likely to respond in the longer term. In future rulemakings, DOE may consider the use of other modelin g approaches for examining long

- run employm ent impacts

.

13.3 METHODOLOGY

DOE based 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 Nation al Laboratory developed the model, ImSE T 3.1. 1 2 ( Im pact of S ector E nergy T echnologies) as a successor to ImB uild

, 3 a special

- purpose version of the IMPLAN 4 national input/output model. Im SET esti mates the employment and income effects of building energy technologies. In comparison with simple economic multiplier13

- 2 approaches, Im SET allows fo r a more complete and automated analysis of the economic impacts of energy

- efficiency 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 so 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 s the overall level of employment.

ImSET uses a 187

- sector model of the national economy to predict the economic effects of residential and commercial buildings technologies. ImSET collects estimates of initial investments, energy savings, and economic a ctivity associated with spending the savings resulting from standards (e.g., changes in final demand in personal consumption, business investment and spending, and government spending). It provides overall estimates of the change in national output for eac h input

- output sector. The model applies estimates of employment and wage income per dollar 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 a nd 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 lead to reductions in utility sector investment and employment.

DOE also notes that the employment impacts estimated with ImSET for the ent ire economy differ from the employment impacts in the dishwasher manufacturing sector estimated in c hapter 12 using the Government Regulatory Impact Model (GRIM). The methodologies used and the sectors analyzed in the ImSET and GRIM models are different.

13.4 SHORT

- TERM RESULTS
The results in this section refer to impacts of dishwasher standards relative to the base case. DOE dis aggregated the impact of standards on employment into three component effects : increased capital investment costs, decreased energy and water costs, and changes in operations and maintenance costs

. DOE anticipates no change in operations and maintenance costs for dishwashers . DOE presents the summary impact.

Conceptually, one can consider the impact of the rule in its first year on three aggregate sectors : the dishwasher production sector, the energy generation sector, and the general13

- 3 consumer good s sector

. ( A s mentioned previously

, ImSET’s calculations are made at a much more disaggregate d level

. ) By r aising energy efficiency, t he rule increas es the purchase price of dishwasher s ; this increase in expenditures causes an increase in employment in this sector. At the same time, the improvements in energy efficiency reduce consumer expenditures on electricity. The reduction in electrici ty demand causes a reduction in employment in that sector. Finally, based on the net impact of increased expenditures on dishwasher s and reduced expenditures on electricity and gas , consumer expenditures on everything else are either positively or negative ly affected, increasing or reducing jobs in th ose sector s accordingly. The model also captures any indirect jobs created or lost by changes in consumption due to changes in employment

. ( A s more workers are hired

, they consume more goods, gene rating more em ployment

, and the converse is true for workers who are laid off

. )

Table 13.4.1 presents the modeled net employment impact from the rule in 2015. Approximately 95 percent of dishwashers are produced domest ically and 5 percent are imported. The net employment impact esti mate is sensitive to assumptions regarding the return to the U.S. economy of money spent on imported dishwashers. The two scenarios bounding the ranges presented in Table 13.4.1 represent situations in which none of the money spent on imported dishwashers returns to the U.S. economy and all of the money spent on imported dishwasher s returns to the U.S. economy. The U.S. trade deficit in recent years suggests that between 50 percent and 75 percent of the money spent on imported dishwashers is likely to return, with employment impacts falling within the ranges presented below. Short

- term changes in employment are minimal as evidenced by Table 13.4.1.

Table 13.4.1 Net National Short

- term Change in Employment (1 , 000 jobs) Trial Standard Level 2013 2018 2020

1

-- - 0.03 to 0.03

- 0.03 to 0.04 2*

- 0.34 to

- 0.28

- 0.12 to

- 0.08

- 0.06 to

- 0.02 3

-- - 1.44 to

- 1.12

- 1.14 to

- 0.80 4

-- - 1.87 to

- 1.46

- 1.38 to

- 0.94 * The compliance date for trial standard levels (TSLs) 1, 3, and 4 is 2018; for TSL 2 , the compliance date is 2013.

For context, OMB currently assumes that the unemp loyment rate may decline to 6.9 percent in 2014 and drop further to 5 percent in 2017. 5 The unemployment rate in 2017 is projected to be close to “full employment.” When an economy is at full employment any effects on net employment are likely to be transitory as workers change jobs, rather than enter or exit longer

- term employment.

13.5 LONG

- TERM RE SULTS
Due to the short payback period of energy efficiency improvements mandated by this rule , over the long term we expect the energy savings to consumers to increasingly dominate the increase in appliance costs, resulting in increased aggregate savings to consumers. As a result,13

- 4 we expect demand for electricity to decline over time and demand for other goods to increase. Since the electricity generation sector is relatively capital intensive compared to the consumer good s sector, the net effect will be a n increase in labor demand. In equilibrium, this should lead to upward pressure on wages and a shift in employment away from electricity generation towards consumer goods. Note that

, in a long

- run equilibrium

, there is no net effect on total employment

, be cause wages adjust to bring the labor market into equilibrium. Nonetheless, even to the extent that markets are slow to adjust, we anticipate that net labor market impacts will be negligible over time due to the small magnitude of the short

- term effects pr esented in Table 13.4.1

. The ImSET model projections, assuming no price or wage effects until 2020, are also included in Table 13.4.1

.13

- 5 REFERENCES

1. Scott, M., J

. M

. Roop, R

. W

. Schultz, D

. M

. Anderson, and K

. A . Cort. The Impact of DOE Building Technology Energy Efficiency Programs on U.S. Employment, Income, and Investment

. Energy Economics

. 2008. 30(5): pp. 2283

- 2301

2

. Roop, J.M., M.J. Scott, and R. W. Schultz

. ImSET: Impact of Sector Energy Tech nologies

. 2005. Pacific Northwest National Laboratory. Richland, WA. Report No. PNNL

- 15273.

3

. Scott, M. J., D. J. Hostick, and D. B. Belzer, ImBuild: Impact of Building Energy Efficiency Programs, April, 1998. Pacifi c Northwest National Laboratory: Ric hland, WA. Report No. PNNL

- 11884. Prepared for the U.S. Department of Energy under Contract DE

- AC06

- 76RLO 1830.

4

. Minnes ota IMPLAN Group Inc. IMPLAN Professional:User's Guide, Analysis Guide, Data Guide

. 1997. IMPLAN Group Inc. : Stillwater, MN.