CHAPTER 1 6 . EM PLOYMENT 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 IMPACTS

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

- 3

LIST OF TABLES

Table 16.4.1 Net National Short

- Term Change in Employment (Number of Jobs)

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

- 3

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- iCHAPTER 16. EMPLOYMENT IMPACT AN ALYSIS

16.1 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 PTAC s and PTHPs

. Job

increases or decrease s reported in this chapter are separate from the direct manufacturing sector employment impacts reported in c hapter 12 and reflect the employment impact of efficiency standards on all other sectors of the economy.

16.2 ASSUMPTIONS

DOE expects energy conserva tion 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 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 1 2 ).

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 magnit ude 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 short

- run analyses

. 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

e stimates 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 T ech nologies)

, 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 appro aches, Im SET allows for a 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 of different sectors o f 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

s ectors, 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 initial investments, energy savin gs, 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 estimates of the change

in natio nal 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 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 manuf acturing 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 also notes that the employment impacts estimated wit h ImSET for the entire economy differ from the employment impacts in the PTAC and PTHP 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.

16.4 SHORT

- TERM RESULTS

The results in this section refer to impacts of PTAC and PTHP 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

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 PTAC and PTHP production sector, the energy generation sector, and the general consumer good sector (as mentioned previously, 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 PTAC s and PTHPs ; 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 electricity demand causes a reduction in employment in that sector. Finally, based on the net impact of increased expenditures on PTAC s and PTHPs and reduced

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- 2expenditures on electricity, consumer expenditures on everything else are either positively or negatively affected, increasing or reducing jobs in that secto r 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, generating more employment ; the converse is true for workers who are laid off

. )

Table 16.4.1 presents the modeled net employment impact from the rule in 201 9 , rounded

to the nearest ten jobs

. Approximately 40% of PTACs and PTHPs are domestically produced and 60% are imported or assembled from imported components. The net employment impact estimate is sensitive to assumptions regarding the return to the U.S. economy of money spent on imported PTACs and PTHPs . The two scenarios bounding the ranges presented in Table 16.4.1 represent situations in which none of the money spe nt on imported PTACs and PTHPs returns to the U.S. economy and all of the money spent on imported PTACs and PTHPs 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 PTACs an d PTHPs is likely to return, with employment impacts falling within the ranges presented below.

Table 16.4.1 Net National Short

- T erm Change in Employment ( N umber of J obs)

Trial Standard Level 201 9 202 4

1

- 10 to 0

- 10 to 10

2

- 60 to

- 10

- 40 to 30

3

- 130 to

- 20

- 80 to 50

4

- 220 to

- 30

- 140 to 70

5

- 260 to

- 30

- 140 to 80

For context, the Office of Management and Budget ( OMB ) currently project s that the

offic ial unemployment rate may decline to 6.9 % in 2014 and drop further to 5. 4 % in 201 9

. 5 The unemployment rate in 201 9 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 ansitor y as workers change jobs, rather t han enter or exit longer

- term employment.

16.5 LONG

- TERM IMPACTS

Due to the short payback period of energy efficiency improvements mandated by this

rule , over 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 electricity to decline over time and demand for other goods to

increase. A s 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 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

, because wages adjust to bring the labor market into equilibrium. Nonetheless, even to the extent that markets are slow to adju st, DOE anticipate s that net labor

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- 3market impacts will be negligible over time due to the small magnitude of the short

- term effects presented in Table 1 6 .4.1. The ImSET model projections, assuming no price or wage effects

until 202 4 , are included in the s econd column of Table 1 6 .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. Belz er, ImBuild: Impact of Building Energy Efficiency Programs, April, 1998. Pacific Northwest National Laboratory. Richland, WA. Report No. PNNL

- 11884.

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

Data Guide , 1997. Stil lwater, MN.

5. Office of Management and Budget, Fiscal Year 2013 Mid

- Session Review: Budget of the
U.S. Government,

< http://www.whitehouse.gov/sites/default/ files/omb/budget/fy2013/assets/13msr.pdf >

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