CHAPTER 1 6 . EMPLOYMENT IMPACT ANALYSIS

TABLE OF CO NTENTS

16.1 INTRODUCTION

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

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16.2 ASSUMPTIONS

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

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16.3 METHODOLOGY

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

- 1

16.4 SHORT

- TERM RESULTS

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

- 2

16.5 LONG

- TERM RESULTS

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

- 3

REFERENCES

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

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LIST OF TABLES

Table 16.4.1 CUAC Net National Short

- term Change in Employment (Number of Jobs)

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- iCHAPTER 16. EMPLOYMENT IMPACT AN ALYSIS

16.1 INTRODUCTION

DOE’s employment impact analysis is designed to estimate aggregate indirect national job creation or elimination resulting from possible standards, due to reallocation of the associated expenditures for purchasing and operating CUAC

. Job increases or decreases reported in this chapter are separate from the dire ct CUAC production sector employment impacts reported in the manufacturer impact analysis ( Chapter 12 ) , and reflect the employment impact of efficiency standards on all 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., they may remain “saved”). The standards may incr ease the purchase price of products , including the retail price plus sales tax, and increase installation

costs.

Using an 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. DOE evaluated direct employment impacts at manufacturers’ facilities in the

ma nufacturer impact analysis (see C hapter 12).

DOE notes that ImSET is not a general equilibrium forecasting model, and understands the uncertainties involved in projecting employment 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 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 emp loyment impacts

.

16.3 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 Na tional 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 multiplier approaches, Im SET allows for more complete and automated analysis of the economic impacts of energy

- efficiency investments in buildings.

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- 1In an input/output model, the level of employment in an economy is determined by the relationship between different sectors of the eco nomy and t he spending flows among them. Sectors vary in their l evels 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 affects 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 ac tivity 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 each 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 a long 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 lowe r employment in other economic sectors. Second, commercial spending is 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 consumer s use less energy, electric utilities experience relative reductions in demand which leads to reductions in utility sector investment and employment.

DOE notes that the employment impacts estimated with ImSET for the entire economy differ from the employ ment impacts in the CUAC manufacturing sector estimated in Chapter 12 using the Government Regulatory Impact Model (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 CUAC 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 costs, and changes in operations and

maint enance costs

. DOE anticipates no change in operations and maintenance costs for CUAC

. DOE presents the summary impact.

Conceptually, one can consider the impact of the rule in its first year on three aggregate sectors, the CUAC production sector, the energy generation sector, and the general consumer good sector (as mentioned above ImSET’s calculations are made at a much more disaggregate level) . By r aising energy efficiency, t he rule generally increas es the purchase price of CUAC ; this increase in exp enditures causes an increase in employment in this sector. At the same time, the improvements in energy efficiency reduce consumer expenditures on electricity , freeing up

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- 2this money to be spend in other sectors . The reduction in electricity demand causes a reduction in employment in that sector. Finally, based on the net impact of increased expenditures on CUAC and reduced expenditures on electricity, consumer expenditures on everything else are either positively or negatively affected, increasing or reduci ng jobs in that sector accordingly. The model also captures any indirect jobs created or lost by changes in consumption due to changes in employment (as more workers are hired they consume more goods, which generates more employment ; the converse is true f or workers laid off ).

Table 16.4.1 present the modeled net employment impact from the rule in 201 9 by trial

standard level , rounded to the nearest hundred jobs

. Approximately 95% of CUAC are domestically produced and 5% are imported . The net employment impact estimate is sensitive to assumptions regarding the return to the U.S. economy of money spent on imported CUAC . The two scenarios bounding the ranges presented in Table 13.4.1 represent situations in which none of the money spent on imported CUAC returns to the U.S. economy and all of the money spent on imported CUAC returns to the U.S. economy. The U.S. trade deficit in recent y ears suggests that between 50% and 75% of the money spent on imported CUAC is likely to return, with employment impacts falling with in the ranges presented below.

Table 16.4.1 CUAC Net National Short

- term Change in Employment ( Number of J obs)

Trial Standard Level 201 9 202 4

TSL 1 1 00 6 00

TSL 2 200 1,300

TSL 3 300 1,700

TSL 4 300 to 400 2,400 to 2,500

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 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 tr ansitory as workers change jobs, rather t han enter or exit longer

- term employment.

16.5 LONG

- TERM RE SULTS

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 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 an increase in labor demand. In equilibrium, this should lead to upward pressure on wa ges and a shift in employment 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, to

the extent th at markets are slow to adjust, DOE anticipate s that net labor market impacts will in

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- 3general be negligible over time due to the small magnitude of the short

- term effects presented in

Table 13.4.1 for most product classes and TSLs

. The ImSET model projections, assuming no price or wage effects until 2024 , are included in the second column of Table 13.4.1

.

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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. Hosti ck, 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

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

Data 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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