November 17, 2003

Statement by Dean Baker on Republican claims concerning the number of jobs created by the proposed energy bill.¹

The Republican claims that their energy bill will create close to one million jobs are not credible on their face. Their estimates of job creation (which are themselves dubious) count only the jobs that might be created by the incentives in the bill. This is an enormous overstatement of potential job gains for two reasons:

1) The estimates do not take account of jobs that would be lost due to the direct diversion of resources from less favored energy paths, and

2) The estimates do not factor in the job loss that would result from the government either having to raise revenue to finance this package, or alternatively from running a larger budget deficit.

When these factors are included, the net job impact of the energy bill may prove to be either positive or negative. Either way, the number of jobs affected by the bill will certainly be only a small fraction (almost certainly less than one-tenth) of the size claimed by the Republicans.

It is worth noting that this is not the first time that grossly exaggerated claims of job creation have been made in reference to this energy bill. Previously, there had been attempts to justify oil drilling in the Arctic National Wildlife Refuge with hugely exaggerated claims of job creation (see "Hot Air Over the Arctic: An Assessment of the WEFA Study of the Economic Impact of Oil Drilling in the Arctic National Wildlife Refuge," [http://www.cepr.net/Publications/ANWR.htm]).

A large portion of the jobs created by the Republican bill will be directly diverted from other sources of energy supply. For example, the jobs created by building a natural gas pipeline through Alaska may largely substitute for jobs that might have been created in developing other sources of natural gas. Similarly, jobs created in promoting nuclear energy or coal may be offset by jobs lost in other forms of energy production.

This diversion is comparable to what would take place if the government provided a 10 percent subsidy on air travel. Undoubtedly, this subsidy would lead to an increase in air travel and would create jobs in the airline industry. However, the job gain in the airline industry would be at least in part offset by job loss in other forms of transportation, as people who may have otherwise used a car, train, or bus, instead opt to fly. In their assessment of the job gains from the energy bill, the Republicans have effectively counted the jobs created in the airline industry, but not counted the jobs lost in other travel related industries.

The second major flaw is that these subsidies (whether through direct expenditures or tax credits) have a cost. As a result of the subsidies in the proposed energy bill, the government has less money than it would otherwise. To make up this shortfall, the government must either cut other spending, raise taxes, or run a larger deficit. Whichever path it chooses will result in job loss. Spending cuts will either involve layoffs of government workers which directly costs jobs, or reduced transfer payments to individuals (e.g. lower Medicare reimbursements), thereby leaving them with less money to spend. Tax increases also pull money out of people's pockets, leaving them with less money to spend. Larger deficits will lead to higher interest rates, which will reduce spending on cars, housing, and investment.

Any serious assessment of the job creation from the energy bill must also include an estimate of the job loss that will result from paying for the bill. By analogy, subsidizing air travel will likely lead to a net creation of jobs in the transportation industry, but it may lead to a net loss of jobs after factoring in the revenue needed to pay for this subsidy. The Republican job creation estimates effectively count the jobs created by the energy bill as if there was no need to pay for the bill.

While it is not possible to determine whether an accurate assessment of the jobs impact of the bill will show a net job loss or gain without a full analysis of its direct and indirect impacts, it is certain that the number of jobs involved would be a small fraction (almost certainly less than one-tenth) of the size claimed by the Republicans. Whether one supports or opposes this energy bill, its net impact on employment is too small to be a consideration in an economy with 140 million jobs.

The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives.

[1] Dr. Dean Baker is the Co-Director of the Center for Economic and Policy Research.

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