8.2 Employment Impacts for the Transport Rule

In addition to addressing the costs and benefits of the Transport Rule, EPA has estimated 

the impacts of this rulemaking on labor demand, and the results are presented in this section.1

While a standalone analysis of employment impacts is not included in a standard cost-benefit 

analysis, such an analysis is of particular concern in the current economic climate. Executive 

Order 13563, states, “Our regulatory system must protect public health, welfare, safety, and our 

environment while promoting economic growth, innovation, competitiveness, and job creation” 

(emphasis added). Therefore, we have provided this partial employment analysis to inform the 

discussion of labor demand and job impacts. We provide an estimate of the employment impacts 

on the regulated industry over time. We also provide the short-term employment impacts 

(increase in labor demand) associated with the construction of needed pollution control 

equipment.

We have not quantified the rule’s effects on all labor in other sectors not regulated by this 

rule, or the effects induced by changes in workers’ incomes. What follows is an overview of the 

various ways that environmental regulation can affect employment, followed by a discussion of 

the estimated impacts of this rule. EPA continues to explore the relevant theoretical and 

empirical literature and seeks public comment in order to ensure that such estimates are as 

accurate, useful and informative as possible.

From an economic perspective, labor is an input into producing goods and services; if 

regulation requires that more labor be used to produce a given amount of output, that additional 

labor is reflected in an increase in the cost of production. Moreover, when the economy is at full 

employment, we would not expect an environmental regulation to have an impact on overall 

employment since labor is being shifted from one sector to another. On the other hand, in periods 

of high unemployment, an increase in labor demand due to regulation may have the potential to 

result in a net increase in overall employment. With significant numbers of workers unemployed, 

the opportunity costs associated with displacing jobs in other sectors are likely to be smaller.

To provide a partial picture of the employment consequences of this rule, EPA takes two 

approaches. First, the analysis uses the results of Morgenstern, Pizer, and Shih (2002) to 

estimate the effects of the regulation on the regulated industry, the electric power industry in this 

case. This approach has been used by EPA in recent Regulatory Impact Analyses. (See, for 

 

1

See TSD as part of the Transport Rule Docket: “Employment Estimates of Direct Labor in Response to the 

Transport Rule in 2014.”
example, the Regulatory Impact Analysis for the recently finalized Industrial Boilers and 

Commercial and Institutional Solid Waste (CISWI) rulemakings, promulgated on February 21, 

2011). Second, EPA uses projections from IPM to estimate the short-term employment effects 

resulting from construction and resource requirements as a result of the additional demand for 

pollution control equipment. Historically, EPA has only reported employment impacts on a few 

regulations. Section 8.3 discusses the estimates of the employment consequences in the 

electricity sector, using the Morgenstern, et al. approach. Section 8.4 estimates the employment 

effects in the environmental protection sector, using the second approach.

8.3 Employment Impacts primarily on the regulated industry: Morgenstern, Pizer, and 

Shih (2002)

EPA examined possible employment effects within the electric utility sector using a peerreviewed, published study that explores historical relationships between industrial employment 

and environmental regulations (Morgenstern, Pizer, and Shih, 2002). The fundamental insight of 

Morgenstern, et al. is that environmental regulations can be understood as requiring regulated 

firms to add a new output (environmental quality) to their product mixes. Although legally 

compelled to satisfy this new demand, regulated firms have to finance this additional production 

with the proceeds of sales of their other (market) products. Satisfying this new demand requires 

additional inputs, including labor, and may alter the relative proportions of labor and capital used 

by regulated firms in their production processes.

Thus, Morgenstern et al. decompose the overall effect of a regulation on employment into 

the following three subcomponents:

The “Demand Effect”: higher production costs raise market prices, reducing consumption 

(and production), thereby reducing demand for labor within the regulated industry 2;

The “Cost Effect”: As production costs increase, plants use more of all inputs, including 

labor, to maintain a given level of output. For example, in order to reduce pollutant 

emissions while holding output levels constant, regulated firms may require 

additional labor;

 

2 The Morgenstern et al. results rely on industry demand and supply elasticities to determine cost pass-through and 

reductions in output.
The “Factor-Shift Effect”: Regulated firms’ production technologies may be more or less 

labor intensive after complying with a regulation (i.e., more/less labor is required per 

dollar of output).

Decomposing the overall employment impact of environmental regulation into three 

subcomponents clarifies the conceptual relationship between environmental 

regulation and employment in regulated sectors, and permitted Morgenstern, et al. to 

provide an empirical estimate of the net impact. For present purposes, the net effect is 

of particular interest, and is the focus of our analysis.

Using plant-level Census information between the years 1979 and 1991, Morgenstern et 

al. estimate the size of each effect for four polluting and regulated industries (petroleum, plastic 

material, pulp and paper, and steel). On average across the four industries, each additional $1 

million ($1987) spending on pollution abatement results in a (statistically insignificant) net 

increase of 1.55 (+/- 2.24) jobs. As a result, the authors conclude that increases in pollution 

abatement expenditures do not necessarily cause economically significant employment changes. 

The conclusion is similar to Berman and Bui (2001) who found that increased air quality 

regulation in Los Angeles did not cause in large employment changes3.

Since the Morgenstern, et al. parameter estimates are expressed in jobs per million 

($1987)4of environmental compliance expenditures, their study offers a transparent and simple 

way to transfer estimates for other employment analysis. For each of the three job effects 

outlined above, EPA used the Morgenstern et al. four industry average parameters and standard 

errors along with the estimated private compliance costs to provide a range of electricity sector 

employment effects associated with the Transport Rule.

By applying these estimates to pollution abatement costs for the final rule for the electric 

power sector, we estimated each effect. The results are

Demand effect: −to + jobs in the directly affected sector with a central estimate of −;

Cost effect: + to + jobs in the directly affected sector with a central estimate of +; and

Factor-shift effect: + to + jobs in the directly affected sector with a central estimate of +.

 

3

For alternative views, see Henderson (1996) and Greenstone (2002). 

4 The Morgenstern et al. analysis uses “production worker” as defined in the US Census Bureau’s Annual Survey of 

Manufactures (ASM) in order to define a job. This definition can be found on the Internet at 

http://www.census.gov/manufacturing/asm/definitions/index.html. 
EPA estimates the net employment effect to range from - to + jobs in the directly

affected sector with a central estimate of +. 5, 6

These estimates are shown in Table 8-3.

Table 8-3. Employment Impacts Using Peer-Reviewed Study

Estimates using Morgenstern et al. (2002)

Demand Effect Cost Effect

Factor Shift 

Effect Net Effect

Change in 

Full-Time Jobs 

per Million 

Dollars of 

Environmental 

Expenditurea

−3.56 2.42 2.68 1.55

Standard Error 2.03 0.83 1.35 2.24

EPA estimate 

for Transport 

Ruleb

+200 to -3,000 +400 to 2,000 0 to +2,000 -1,000 to 3,000

a Expressed in 1987 dollars. See footnote 8 for inflation adjustment factor used in the analysis.

b According to the 2007 Economic Census, the electric power generation, transmission and distribution sector 

(NAICS 2211) had approximately 510,000 paid employees. Both the midpoint and range for each effect are 

reported in the last row of the table.

All ranges for these job changes are based on the 95th percentile of results. EPA 

recognizes there will be other employment effects which are not considered in the Morgenstern 

et al. study. For example, employment in environmental protection industries may increase as 

firms purchase more pollution control equipment and services to meet the rule’s requirements. 

EPA does provide such an estimate of employment change later in this section in a separate 

analysis. On the other hand, industries that use electricity will face higher electricity prices as the 

result of the transport rule, reduce output, and demand less labor. In the earlier part of Chapter 8 

we use a Multimarket Model to estimate that there will be a .002% reduction in output in 

nonmanufacturing industries and .002 to .007 percent reductions in output in various 

 

5

Since Morgenstern’s analysis reports environmental expenditures in $1987, we make an inflation adjustment the 

IPM costs using the ratio of the consumer price index, U.S. city, all items reported by the U.S. Bureau of Labor 

Statistics: CPI1987/ CPI2007 = (113.6/207.3) = 0.55

6

Net employment effect = 1.55× $832 million × 0.55. This estimated net result is not statistically different from 

zero.
manufacturing industries. It is difficult, however, to extend these results to an estimate of 

employment effects across these many different industries; therefore, we feel we do not currently 

have sufficient information to quantify these impacts as potential employment losses.

8.3.1 Limitations

Although the Morgenstern et al. paper provides information about the potential job 

effects of environmental protection programs, there are several caveats associated with using 

those estimates to analyze the final rule. First, the Morgenstern et al. estimates presented in 

Table 8-3 and used in EPA’s analysis represent the weighted average parameter estimates for a 

set of manufacturing industries (pulp and paper, plastics, petroleum, and steel). Morgenstern, et 

al. present those industries’ estimates separately, and they range from -1.13 jobs per $1 million 

(in 1987 dollars) of environmental expenditures for pulp and paper, to +6.90 jobs for plastics. 

Only two of the total jobs estimates are statistically significantly different from zero, and the 

overall weighted average used here, 1.55 jobs per $1 million, is not statistically significant. 

Moreover, here we are applying the estimate to the electricity generating industry.

Second, relying on Morgenstern et al. implicitly assumes that estimates derived from 

1979–1991 data are still applicable. Third, the methodology used in Morgenstern et al. assumes 

that regulations affect plants in proportion to their total costs. In other words, each additional 

dollar of regulatory burden affects a plant by an amount equal to that plant’s total costs relative 

to the aggregate industry costs. By transferring the estimates, EPA assumes a similar distribution 

of regulatory costs by plant size and that the regulatory burden does not disproportionately fall 

on smaller or larger plants.

8.4 Employment Impacts of the Transport Rule - Environmental Protection Sector 

Approach, by 2014 7

The Transport Rule will require additional pollution control equipment and services in 

order to reduce emissions from the power sector and address nonattainment and the transport of 

air emissions cross state borders. Historically, new categories of employment have been created 

in the process of implementing regulations that reduce air emissions and other forms of 

pollution. When a regulation is promulgated, the first response of industry is to order pollution 

control equipment and services in order to comply with the regulation when it becomes effective. 

Revenue and employment in the environmental technology industry have grown steadily

between 2000 and 2008, reaching an industry total of approximately $300 billion in revenues and 

 

7

EPA expects that the installation of retrofit control equipment in response to the requirements of this rule will 

primarily take place within 2014. 
1.7 million employees in 2008.8 While these revenues and employment figures represent gains 

for the environmental technologies industry, they are costs to the regulated industries required to 

install the equipment. Moreover, it is not clear the 1.7 million employees in 2008 represent 

anything other than workers diverted from other productive employment as opposed to new 

additional employment.

Regulated firms hire workers to design and construct pollution control equipment. Once 

the equipment is installed, regulated firms hire workers to operate and maintain the pollution 

control equipment – much like they hire workers to produce more output. A study by Resources 

for the Future examined how regulated industries respond to regulation. They found that on 

average, employment goes up in regulated firms. Of course, these firms may also reassign 

existing employees to do these activities.

Environmental regulations support employment in many basic industries. In addition to 

the increase in employment in the environmental protection industry (increased orders for 

pollution control equipment), environmental regulations also support employment in industries 

that provide intermediate goods to the environmental protection industry. For example, $1 

billion in capital expenditures to reduce air pollution involves the purchase of abatement 

equipment. The equipment manufacturers, in turn, order steel, tanks, vessels, blowers, pumps, 

and chemicals to manufacture and install the equipment.

A study (2008) by Bezdek, Wendling, and DiPernab found that “investments in 

environmental protection industries create jobs and displace jobs, but the net effect on 

employment is positive.”

The focus of this part of the employment analysis is on short-term jobs related to the 

compliance actions of the affected entities and includes estimates of the employment impacts due 

to the increased demand for pollution control equipment.9 Results indicate that the Transport 

 

8

In 2008, the industry totaled approximately $315 billion in revenues and 1.9 million employees including indirect 

employment effects, pollution abatement equipment production employed approximately 4.2 million workers in 

2008. These indirect employment effects are based on a multiplier for indirect employment = 2.24 (1982 value from 

Nestor and Pasurka - approximate middle of range of multipliers 1977-1991). Environmental Business International 

(EBI), Inc., San Diego, CA. Environmental Business Journal, monthly (copyright). http://www.ebiusa.com/ EBI 

data taken from the Department of Commerce International Trade Administration Environmental Industries Fact 

Sheet from April 2010: 

http://web.ita.doc.gov/ete/eteinfo.nsf/068f3801d047f26e85256883006ffa54/4878b7e2fc08ac6d85256883006c452c?

OpenDocument

9

For more detail on methodology, approach, and assumptions, see Appendix D in this RIA: “Employment Estimates 

of Direct Labor in Response to the Transport Rule in 2014.”
Rule has the potential to result in a net increase of labor in these industries, driven by the 

increased demand for new pollution controls. Overall, the preliminary results of the 

environmental protection sector approach indicate that the Transport Rule could support an 

increase of about 2,230 job-years10 by 2014.

8.4.1 Overall Approach and Methodology for Environmental Protection Sector Approach

EPA commissioned ICF International to provide estimates for the Environmental 

Protection Sector, and the analysis utilizes a bottom-up engineering based methodology

combined with macroeconomic data on industrial output and productivity, to estimate 

employment impacts in the environmental control sector of the economy. It relies on projections 

from the IPM model and projections for new pollution control equipment and related costs, along 

with data from the Bureau of Labor Statistics and other sources. The approach also relies upon 

prior EPA studies on similar issues, and in particular uses data and information from an 

extensive resource study conducted in 2002, which was updated in the Spring of 2011 and 

reflects more recent information.11 The approach involves using IPM projected results from the 

Transport Rule analysis for the set of pollution control technologies expected to be installed to 

comply with the rule, along with data from secondary sources, to estimate the job impacts using 

this approach.12 This includes the labor needed to design, manufacture and install the needed 

pollution control equipment over the years leading up to compliance in 2014.

For construction labor, the labor needs are derived from the 2002 EPA resource analysis 

for installing various retrofits (FGD – Flue Gas Desulfurization scrubbers, SCR- selective 

catalytic reduction, and DSI - dry sorbent injection) and are further classified into different labor 

categories, such as boilermakers, engineers and a catch-all “other installation labor.” For the 

inputs needed (e.g., steel), the 2002 resource study was used to determine the steel demand for 

each MW of additional pollution control and combined with labor productivity data from the 

Economic Census and BLS for relevant industries.

 

10 Numbers of job years are not the same as numbers of individual jobs, but represents the amount of work that can 

be performed by the equivalent of one full-time individual for a year (or FTE). For example, 25 job years may be 

equivalent to five full-time workers for five years, twenty-five full-time workers for one year, or one full-time 

worker for twenty-five years.

11 Engineering and Economic Factors Affecting the Installation of Control Technologies for Multipollutant 

Strategies EPA-600/R-02/073 (2002).

12 Detailed results from IPM for the Transport Rule can be found in Chapter 7 of the RIA.
More detail on methodology, assumptions, and data sources can be found in Appendix D 

of this RIA - “Employment Estimates of Direct Labor in Response to the Transport Rule in 

2014.”

Projections from IPM were used to estimate the incremental retrofit capacities projected 

in response to the final rule. These additional pollution controls are shown in Table 8-4 below, 

and reflect the added pollution controls needed to meet the requirements of the rule. Additional 

information on the power sector impacts can be found in Chapter 7 of the RIA.

Table 8-4. Increased Pollution Control Demand due to the Transport Rule, by 2014 (GW)

Retrofit Type

Existing Controls 

Induced to Operate Newly Built Controls

FGD 25 6

SCR 5 0

DSI 0 3

8.4.2 Summary of Employment Estimates from Environmental Protection Sector 

Approach

Table 8-5 presents additional detail on the estimated employment impacts using the 

environmental protection sector approach resulting from the Transport Rule. Results for the 

Environmental Protection Sector Approach indicate the Transport Rule could support or create 

roughly 2,230 one-time job-years of increased demand for direct labor, driven by the need to 

design and build the pollution control equipment.

Table 8-5. Employment Effects Using the Environmental Protection Sector Approach for 

the Transport Rule by 2014 (in Job-Years) 

Employment Incremental Employment

One-Time Employment Changes for Construction

1. Boilermakers 890

2. Engineers 440

3. General Construction 880

4. Steel Manufacturing 20
8.4.3 Other Employment Impacts of the Transport Rule

We expect ongoing employment impacts on regulated and non-regulated entities for a 

variety of reasons. These include labor changes in the regulated entities resulting from shifts in 

demand for fuels, increased demand for materials and the labor required to provide them to 

operate pollution control equipment, reductions in employment resulting from coal retirements, 

and reductions in other industries due to slight projected increases in the price of electricity and 

natural gas. The most notable of the ones we are unable to estimate are the impacts on 

employment as a result of the increase in electricity and other energy prices in the economy. 

Because of this inability to estimate all the important employment impacts, EPA neither sums the 

impacts that the Agency is able to estimate for the ongoing non-regulated group or make any 

inferences of whether there is a net gain or loss of employment for the non-regulated group. 

These other ongoing employment impacts are found in Table 8-6, and these employment impacts 

are not included in the Agency estimate of employment impacts for this Transport Rule for the 

reasons mentioned in this paragraph.

Table 8-6. Employment Impacts for Entities Not Regulated by the Transport Rule

Employment Changes for Ongoing Annual Operation

Employment Changes from Changes to Demand in 

Materials13

1. Limestone (FGD) 2,440

2. Ammonia (SCR) 30

3. Catalyst (SCR) 20

4. Sodium Bicarbonate (DSI) 160

Sub-Total: 2,650

Employment Changes for Ongoing Annual Retrofit 

Operation

2,320

Employment Annual Changes due to Coal Capacity 

Retirements

(2,710)

Annual Employment Changes due to Changes in Fuel Use (990)

Coal 

(2,030)

Natural Gas 810

New Natural Gas Pipeline 230
8.5 Summary

The two approaches use different analytical techniques and are applied to different 

industries during different time periods, and they use different units of analysis. These estimates 

should not be summed because of the different metrics, length and methods of analysis as 

mentioned in Section 8.4. The Morgenstern estimates are used for the ongoing employment 

impacts for the regulated entities (the electric power sector). The short term estimates for 

employment needed to design, construct, and install the pollution control equipment in the period 

leading up to the compliance date are also provided. Finally some of the other types of 

employment impacts that will be ongoing are not included in the employment impacts estimated 

for the final Transport Rule.

Table 8-7 shows the employment impacts of the final Transport Rule as estimated by the 

environmental protection sector approach and by the Morgenstern approach.

Table 8-7. Estimated Employment Impact Table 

Annual (reoccurring) One time (construction 

during compliance period)

Environmental Protection 

Sector approach*

Not Applicable 2,230

Net Effect on Electric Utility

Sector Employment from 

Morgenstern et al. 

approach***

**+700

- 1,000 to +3,000****

Not Applicable

*These one-time impacts on employment are estimated in terms of job-years.

**This estimate is not statistically different from zero.

***These annual or recurring employment impacts are estimated in terms of production workers as defined by the 

US Census Bureau’s Annual Survey of Manufacturers (ASM).

**** Based on the 95% confidence interval of the Morganstern study.