13

- i CHAPTER 1 3 . EMPLOYMENT IMPACT ANALYSIS

TABLE OF CO NTENTS

13.1 INTRODUCTION

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

- 1

13.2 ASSUMPTIONS

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

- 1

13.3 METHODOLOGY

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

- 1

13.4 SHORT

- TERM RESULTS

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

- 2

13.5 LONG

- TERM RESULTS

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

- 3

LIST OF TABLES

Table 13.4.1 Net National Short

- term Change in Employment (1000 jobs)

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

- 313

- 1 CHAPTER 13. EMPLOYMENT IMPACT AN ALYSIS

13.1 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 clothes washers

. Job increases or dec reases reported in this chapter are separate from the direc t clothes washer 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.

13.2 ASSUMPTIONS

DOE expects clothes washer standards to decrease energy and water consumption, and therefore to reduce energy and water expenditures. The savings in energy and water 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 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 man ufacturer 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, t hey 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 emp loyment impacts

.

13.3 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 economy related to buildings and the net impact of standards on jobs. The Pacific N orthwest 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

ec onomic multiplier approaches, Im SET allows for more complete and automated analysis of the economic impacts of energy

- efficiency investments in buildings.13

- 2

In an input/output model, the level of employment in an economy is determined by the relationship o f 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 commercial 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 investment and spending, and government spending). It provides overall estimat es 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 tec hnology 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 employme nt 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 pro duction inputs. Third, energy and water utility sector inve stment funds are released for use in other sectors of the economy. When consumers use less energy, utilities experience relative reductions in demand which leads to reductions in utility sector investment and employment.

DOE also notes that the employmen t impacts estimated with ImSET for the entire economy differ from the employment impacts in the clothes washer manufacturing sector estimated in Chapter 12 using the Government Regulatory Impact Model (GRIM). The methodologies used and the sectors analyze d in the ImSET and GRIM models are different.

13.4 SHORT

- TERM RESULTS

The results in this section refer to impacts of clothes washer standards relative to the base

case. DOE dis aggregated the impact of standards on employment into three component effects : i ncreased 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

clothes washer s. DOE presents the summary impact.

Conceptually, one can consider the impact of the rule in its first year on three aggregate sectors, the clothes washer production sector, the energy and water production 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 increas es the purchase price of

clothes washers , this increase in expenditures causes an increase in employment in this sector. At13

- 3

the same time, the improvements in effici ency reduce consumer expenditures on e nergy and

water . The reduction in energy and water demand causes a reduction in employment in that sector. Finally, based on the net impact of increased expenditures on clothes washers and

red uced expenditures on energ y and water , 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

i n employment (as more workers are hired they consume more goods, which generates more employment , the converse is true for workers laid off ).

Table 13.4.1 present s the modeled net employment impact from the rule in 2015. Approximately 86 % of clothes washers are produced domestically and 14 % are imported. The net employment impact estimate is sensitive to assumptions regarding the return to the U.S. economy of money spent on imported clothes washers . The two scenarios bounding the ranges presented in Table 13.4.1 represent situations in which none of the money spent on imported

clothe s washers returns to the U.S. economy and all of the money spent on imported clothes

washers returns to the U.S. economy. The U.S. trade deficit in recent years suggests that between 50% and 75% of the money spent on imported clothes washer s is likely to return, with employment impacts falling with in the ranges presented below.

Table 13.4.1 Net National Short

- term Change in Employment ( 1000 jobs)

Trial Standard

Level 201 5 2020

1

- 0.06 to 0.04 1.77 to 1.87

2

- 0.37 to

- 0.18 1.79 to 1.98

3

- 0.05 to 0.07 1.68 to 2.06

4

- 3.71 to

- 2.61 0.67 to 1.75

5

- 4.62 to

- 3.26 0.58 to 1.91

For context, OMB 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.

13.5 LONG

- TERM RESULTS

O ver the long term DOE expect s the energy savings to consumers to increasingly dominate the increase in appliance costs, resulting in increased aggregate savings to consumers. As a result, DOE expect s demand for e nergy and water to decline over time and demand for other goods to increase. Since the energy and water production 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 wages and a shift in employment away from electricity generation towards consumer goods. Note that in long

- run equilibrium13

- 4

there is no net effect on total employment since wages adjust to brin g 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 be negligible over time due to the small magnitude of the short

term effects presented in Table 13.4.1

. The ImSET model projections, assuming no price or wage effects until 2020, are included in the second column of Table 13.4.1

.13

- 5 REFERENCES

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,

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.whit ehouse.gov/sites/default/files/omb/budget/fy2012/assets/12msr.pdf >