CHAPTER 1 6 . EMPLOYMENT IMPACT ANALYSIS

TABLE OF CO NTENTS

16.1 INTRODUCTION

................................ ................................ ................................ ......... 16

- 1

16.2 ASSUMPTIONS

................................ ................................ ................................ ............ 16

- 1

16.3 METHODOLOGY

................................ ................................ ................................ ........ 16

- 1

16.4 SHORT

- TERM RESULTS

................................ ................................ ............................ 16

- 2

16.5 LONG

- TERM RESULTS

................................ ................................ .............................. 16

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LIST OF TABLES

Table 16.4.1 Commercial clothes washer Net National Short

- term Change in Employment (Number of Jobs)

................................ ................................ .......... 16

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- iCHAPTER 16. EMPLOYMENT IMPACT AN ALYSIS

16.1 INTRODUCTION

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 commercial clothes washers

. Job increa ses or decreases reported in this chapter are separate from the direct commercial clothes washer production sector employment impacts reported in the manufacturer impact analysis ( Chapter

12 ) , and reflect the employment impact of efficiency standards on al l other sectors of the

economy.

16.2 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., t he y may remain “saved”). The standards may increase the purchase price of products , including the retail price plus sales tax, and increase installation

costs.

The ImSET input/output econometric model of the U.S. economy, this analysis estimated

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 evaluated direct employment impacts at manufacturers’ facilities in the manufacturer impact analysis (see C hapter 12).

DOE notes that ImSET is not a general equilibrium forecasting model, and understands the uncertainties involved in projecting employ ment impacts, especially changes 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. Since input/output models do not allow prices to bring markets into equilibrium, they are best used for short

- run analysis. DOE therefore include s 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 employment impacts

.

16.3 METHODOLOGY

The Department based its analysis on an input/output model of the U.S. economy that estimates the effects of standards on major sectors of the econom y 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 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

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- 1economic multiplier approaches, Im SET allows for 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 affects the overall level of employment.

ImSET uses a 187

- sector model of the national economy to predict the economic effects

of residential and co mmercial buildings technologies. ImSET collects estimates of initial investments, energy savings, and economic activity associated with spending the savings resulting from standards (e.g., changes in final demand in personal consumption, business

investmen t 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 dollar of economic output for each sector and calculates im pacts 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 product s. The increased cost of product s leads to higher employment in

the product 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, 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 investm ent and employment.

DOE also notes that the employment impacts estimated with ImSET for the entire economy differ from the employment impacts in the commercial clothes washer manufacturing sector estimated in Chapter 12 using the Government Regulatory Im pact Mode l (GRIM). The methodologies used and the sectors analyzed in the ImSET and GRIM models are different.

16.4 SHORT

- TERM RESULTS

The results in this section refer to impacts of commercial clothes washer standards

relative to the base case. DOE dis aggr egated the impact of standards on employment into three component effects : increased capital investment costs, decreased energy costs, and changes in operations and maintenance costs

. DOE presents the summary impact.

Conceptually, one can consider the impact of the rule in its first year on three aggregate sectors, the commercial clothes washer production sector, the energy generation sector, and the general consumer good sector (as mentioned above ImSET’s calculations are made at a much more disagg regate level) . By r aising energy efficiency, t he rule generally increas es the purchase price of commercial clothes washers ; this increase in expenditures causes an increase in

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- 2employment in this sector. At the same time, the improvements in energy efficien cy reduce consumer expenditures on e nergy , f reeing up this money to be spent in other sectors . The

reduction in e nergy demand causes a reduction in employment in utilities . Finally, based on the net impact of increased expenditures on commercial clothes wa shers and reduced expenditures

on e nerg y, consumer expenditures on everything else are either positively or negatively affected, increasing or reducing jobs in that sector accordingly. The model also captures any indirect jobs created or lost by changes in consumption due to changes in employment ( e.g. as more workers are hired they consume more goods, which generates more employment ; the converse is true for

workers laid off ).

Table 16.4.1 present the modeled net employm ent impact from the rule in 2019 , rounded

to the nearest ten jobs

. As most commercial clothes washers are produced domestically, DOE does not model the impact of import spending for this product.

Table 16.4.1 Commercial C lothes W asher Net National Short

- term Change in Employment ( Number of J obs)

Trial

Standard

Level 201 9 202 4

TSL 1 1 0 4 0

TSL 2 1 0 5 0

TSL 3

- 1 0 8 0

TSL 4

- 3 0 5 0

For context, the Office of Management of Budget currently assumes that the unemployment rate may decline to 6.9% in 2014 an d drop further to 5.3% in 2017. 5 The unemployment rate in 2019 is projected to remain close to “full employment.” When an economy is at full employment any effects on net employment are likely to be tr ansitory as workers change jobs, rather t han enter or exit longer

- term employment.

16.5 LONG

- TERM RESULTS

Over the long term DOE expect s the energy savings to consumers to increasingly

dominate the increase in product costs, resulting in increased aggregate savings to consumers. As a result, DOE expect s demand for e nerg y to decline over time and demand for other goods to

increase. Since the electricity generation and natural gas sector s are relatively capital intensive compared to the consumer good s sector, the net effect will be an increase in labor demand. In equilibrium, this should lead to upward pressure on wages and a shift in employme nt away from electricity generation towards consumer goods. Note that in long

- run equilibrium there is no net effect on total employment since wages adjust to bring the labor market into equilibrium. Nonetheless, even to the extent that markets are slow to adjust, DOE anticipate s that net labor market impacts will in general be negligible over time due to the small magnitude of the short

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- 3term effects presented in Table 16.4.1

. The ImSET model projections, assuming no price or wage effects until 2024 , are included in the second column of Table 16.4.1

.

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- 4REFERENCES

1. Scott, M., JM Roop, RW Schultz, DM Anderson, KA 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 Technologies , 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. Pacific Northwest National Laboratory. Richland, WA. Report No. PNNL

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

DE

- AC06

- 76RLO 1830.

4

. Minnesota IMPLAN Group Inc., IMPLAN Professional: User's Guide, Analysis Guide,

Dat a Guide , 1997. Stillwater, MN.

5. Office of Management and Budget, Fiscal Year 2012 Mid

- Session Review: Budget of the

U.S. Government

, Washington, DC.

< http ://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/12msr.pdf >

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