The Micreconomics of Green Jobs

Much fuss has been made about green jobs. Do they exist, and are more “brown” jobs displaced for every green one? Given all the political rhetoric, it’s not surprising that there is also considerable confusion about green jobs.

                      Image by Getty Images via @daylife

There should not be. While pinpointing the actual number of jobs created or destroyed by any particular policy will always be fraught, the underlying microeconomics are rather simple, and understanding those microeconomics can make it clear if a given policy will be a net creator or destroyer of jobs.
While there are many considerations that should be taken into account when forming policy, such as encouraging new technology which may allow future growth, and improving the health and well-being of citizens, I am going to restrict myself to the goal of promoting job creation and economic activity in this article in order to keep the discussion relatively simple.
Re-framing the Question
In order to avoid the rather pointless debate about the definition of a “green job” I will re-frame the question to one that I believe both sides would agree is more important (at least if they were able to put aside partisan bickering):

Does a particular green policy create more jobs than it destroys?

If a policy is both green (which I define as lowering our use of resources and/or environmental impact) and is a net creator of jobs, all parties should agree that it is a good policy. Green policies which destroy jobs, on the other hand will require further analysis as to whether the environmental and health benefits outweigh the economic losses, a question which requires putting relative value on various benefits, and cannot be resolved purely by economic reasoning.
Which Policies are Net Job Creators?
I’m aware of two mechanisms by which a policy can increase or decrease economic activity and hence number of jobs.

1. Jobs can be created or destroyed by substituting labor for capital, energy, and/or other resources in production.
2. If a policy increases economic efficiency, it will increase economic activity and create jobs. If it decreases economic efficiency, it will reduce economic activity and destroy jobs.

Substituting Labor for Energy or Capital

Image Source: Wikipedia

A basic tenet of microeconomics says that there is a tradeoff between capital, labor and natural resources such as energy in the production function. In particular, you can substitute capital for labor (by mechanization) or labor for capital (by using shovels and picks instead of bulldozers.) Now add energy into the mix, and you can substitute fossil energy for either capital or labor to attain the same production.
For example, a hybrid vehicle substitutes capital and resources (in the form of an electric motor and batteries) for energy (less fuel consumed to do the same work.) A bus substitutes labor (the bus driver) for capital, resources and energy (lots of cars and fuel consumed.) A green building substitutes labor (better architecture/construction) and some resources (extra insulation) for energy.
From this perspective, any policy that promotes the substitution of labor for energy will create green jobs, since you get more work and less energy consumed. Shifting people out of their cars and onto mass transit will create jobs because there will have to be drivers and people managing the transit system, where before no one was paid to drive. To the extent that the transit system can be paid for out of the reduced fuel costs and car ownership costs of the former drivers turned riders, the number of jobs created will be a pure economic gain.

Multiplier Effects
That brings us to the other major potential source of jobs from green policies: economic multiplier effects.
To the extent that green policies improve economic efficiency by overcoming economic barriers to cost effective green solutions, these policies will result in greater economic activity, and hence more jobs. The strongest critique of “green jobs” initiatives is that they simply shift economic activity from out-of-favor “brown” sectors to more politically correct green ones. Yet when a policy improves economic efficiency, it does not just shift jobs and capital around in the economy: it creates economic activity and jobs.
Not all green policies improve economic efficiency. For example, subsidies for not-yet-economic types of renewable energy such as wave power and solar installations may be justifiable on the grounds that they are helping to promote needed future technologies, but they probably come at a net cost to near-term jobs (even if they may create more jobs in the long term by allowing the creation of new types of businesses.)
On the other hand, policies to promote energy efficiency will be strong net creators of jobs, because the cost of energy efficiency is typically only a fraction of the cost of the energy saved. The very existence of opportunities to save significantly on energy bills at modest cost is proof that the energy market is inefficient. In an efficient market, all such opportunities would have already been taken.
After the energy efficiency measure has been installed, the cost savings can be used for useful economic activity, rather than wasted on unneeded fuel. This money will then spur additional activity and stimulate jobs.
Using Fossil Resources to Stimulate Growth is Like Stimulating Growth With Debt
Short term jobs (green or otherwise) should not be the only consideration when forming policy. A short term focus on jobs today can end up doing long term economic harm. For instance, if we spend too much borrowed money to create jobs today, the long term drag on the economy caused by paying back the debt will leave everyone worse off.
Economic growth fueled by the extraction of non-renewable resources is very similar to economic growth fueled by debt. When we extract these resources and use them, we increase economic activity today, but their non-renewable nature means that we lose the opportunity to extract and use them tomorrow. Hence, the economic stimulus today comes at the cost of an economic drag tomorrow, and the future economic drag will generally be larger than today’s stimulus, since improving technology should allow us to get more benefit from each unit of resource in the future.
Using renewable resources to stimulate growth does not have this problem: Tapping the wind or the sun for energy today does nothing to diminish the wind or sun tomorrow. Hence, to the extent a green job relies on renewable resources and a brown job relies on fossil resources, the green job should be preferred, even before taking the environmental benefits into account.
Policy Implications
If we only consider job creation, the focus on policy should be on creating jobs and economic activity, with a preference for green jobs, since those impose less of a cost on future economic activity than jobs based on extractive industries.

Green jobs can be created either by substituting labor for energy and capital, or by reducing energy waste so that the money previously wasted on energy can be put to more productive uses. For policy makers who wish to create green jobs, the implications are clear.
Green job programs should focus on two types of opportunities:

1. Industries where labor can usefully be substituted for energy or capital, such as mass transit.
2. Breaking down the barriers to energy efficiency which can stimulate economic activity by allowing money that would otherwise have been wasted.

The converse is also true: if the goal is to create jobs and stimulate economic activity, subsidies and other policies which encourage the substitution of capital and energy for labor should be ended, especially those subsidies which encourage the extraction of non-renewable resources which only create jobs today at the cost of future jobs.
The most cost effective policies for creating jobs will be those that break down the barriers to the adoption of cost-effective green technologies, especially energy efficiency. Ironically, most energy subsidies have gone into capital intensive sectors such as nuclear and extractive sectors such as oil and gas.
A very cost effective way to produce jobs would then simply be to remove subsidies from fossil fuels and nuclear energy and redirect them towards the most cost effective clean technologies.
Increased support for and promotion of public transit could do much more to reduce our dependence on imported oil than support for domestic drilling (which will only make us more dependent on imported oil in the future by using up domestic resources sooner) while also creating jobs.
Meanwhile, energy efficiency programs such as cash for caulkers can cost-effectively reduce energy bills and free up money for other sorts of consumption while also creating jobs in the depressed housing sector.

(originally published in Forbes)

For Richer For Poorer

As probably many of you know, there is a cloud hanging over the future of the US and many other countries, the cloud of wealth concentration. There is nothing in life that will not be affected by this phenomenon. It obviously affects our allocation of resources and  it will have tremendous influence on who gets what. It would affect the relations between the social classes and could lead to social unrest if we allow the fissure between the haves and have nots to increase. The following is only one part of an excellent article that speaks to this issue.

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Growing inequality is one of the biggest social, economic and political challenges of our time. But it is not inevitable, says Zanny Minton Beddoes

Oct 13th 2012 | from the print edition of The Economist

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IN 1889, AT the height of America’s first Gilded Age, George Vanderbilt II, grandson of the original railway magnate, set out to build a country estate in the Blue Ridge mountains of North Carolina. He hired the most prominent architect of the time, toured the chateaux of the Loire for inspiration, laid a railway to bring in limestone from Indiana and employed more than 1,000 labourers. Six years later “Biltmore” was completed. With 250 rooms spread over 175,000 square feet (16,000 square metres), the mansion was 300 times bigger than the average dwelling of its day. It had central heating, an indoor swimming pool, a bowling alley, lifts and an intercom system at a time when most American homes had neither electricity nor indoor plumbing.

A bit over a century later, America’s second Gilded Age has nothing quite like the Vanderbilt extravaganza. Bill Gates’s home near Seattle is full of high-tech gizmos, but, at 66,000 square feet, it is a mere 30 times bigger than the average modern American home. Disparities in wealth are less visible in Americans’ everyday lives today than they were a century ago. Even poor people have televisions, air conditioners and cars.

But appearances deceive. The democratisation of living standards has masked a dramatic concentration of incomes over the past 30 years, on a scale that matches, or even exceeds, the first Gilded Age. Including capital gains, the share of national income going to the richest 1% of Americans has doubled since 1980, from 10% to 20%, roughly where it was a century ago. Even more striking, the share going to the top 0.01%—some 16,000 families with an average income of $24m—has quadrupled, from just over 1% to almost 5%. That is a bigger slice of the national pie than the top 0.01% received 100 years ago.
This is an extraordinary development, and it is not confined to America. Many countries, including Britain, Canada, China, India and even egalitarian Sweden, have seen a rise in the share of national income taken by the top 1%. The numbers of the ultra-wealthy have soared around the globe. According to Forbes magazine’s rich list, America has some 421 billionaires, Russia 96, China 95 and India 48. The world’s richest man is a Mexican (Carlos Slim, worth some $69 billion). The world’s largest new house belongs to an Indian. Mukesh Ambani’s 27-storey skyscraper in Mumbai occupies 400,000 square feet, making it 1,300 times bigger than the average shack in the slums that surround it.

The concentration of wealth at the very top is part of a much broader rise in disparities all along the income distribution. The best-known way of measuring inequality is the Gini coefficient, named after an Italian statistician called Corrado Gini. It aggregates the gaps between people’s incomes into a single measure. If everyone in a group has the same income, the Gini coefficient is 0; if all income goes to one person, it is 1.
The level of inequality differs widely around the world. Emerging economies are more unequal than rich ones. Scandinavian countries have the smallest income disparities, with a Gini coefficient for disposable income of around 0.25. At the other end of the spectrum the world’s most unequal, such as South Africa, register Ginis of around 0.6. (Because of the way the scale is constructed, a modest-sounding difference in the Gini ratio implies a big difference in inequality.)

Getting The Number Wrong

The following post is an attempt to explain the unemployment figures that were released last Friday.

By FLOYD NORRIS

Mitt Romney said on Friday that there were 23 million Americans struggling to find work. It looks as if he got that wrong, by engaging in a little double counting. The real number is around 21 million.
The just-released Labor Department report for September says there are 12,088,000 people classified as unemployed, meaning they looked for a job during the previous month and did not find one. That is the seasonally adjusted figure. The actual number the department estimated was 11,742,000.
There are no seasonally adjusted numbers for the other groups that could conceivably fit into the category — people not in the labor force who say they would like work if they could find it and people classified as “marginally attached” to the labor force.
There are 6,427,000 people counted as out of the labor force but wanting to work, and 2,517,000 classified as marginally attached.
Add them together, and use the higher (seasonally adjusted) figure for unemployment, and you get 21,032,000. If you were trying to be fair and compare apples to apples, you’d used all numbers before seasonal adjustment, and get 20,686,000.
Either way, that is a long way from 23 million.
So where did the rest come from? My guess is that Mr. Romney’s aides looked at Table A-16 of the release. That shows the 2,517,000 “marginally attached,” and breaks them into two groups. The first is 802,000 discouraged workers, and the rest — 1,715,000 — are classified as people who are deemed to be marginally attached but are not discouraged workers. That includes people who were ill or had school or family responsibilities that kept them from looking for work. If you add those two groups to the whole, then the number gets to be over 23 million. But that would represent a misreading of the figures.
Even if Mr. Romney had done his arithmetic correctly, it would be a stretch to say there were 21 million people “struggling to find work.” Of the 6.4 million who said they were not in the labor force but would work if they could, 3.3 million said they had not actually tried to find a job in the last year.

Increasing Price of Beef

Read carefully the attached article that appeared a few months ago and comment on it.


The 2012 January 1 Cattle report from USDA shows U.S. beef herds at their lowest number since 1952. Producers have begun retaining more heifers for breeding, which eventually should turn the trend around. But removal of those females from feeder-cattle supplies will mean U.S. beef production will shrink even more before it begins to grow.
The USA Today article notes that USDA projects retail beef prices, currently at record levels, will increase by another 4 to 5 percent this year. The article quotes Drovers/CattleNetwork’s economic consultant John Nalivka of Sterling Marketing, saying beef prices could rise even faster, as much as 10 percent this year. Nalivka also notes that as cattle prices have climbed to record highs, packers have absorbed significant losses as wholesale beef prices have not kept pace. Retailers also have resisted passing all of their higher beef costs on to consumers.
Even so, retail prices for Choice beef and all fresh beef set new records in December according to USDA’s report on meat price spreads last week. The report lists the average retail price of Choice beef for December at $5.02 per pound, up from $5.00 in November. For the fourth month in a row, the Choice price set a new nominal high.
The role of beef exports in higher U.S. cattle and beef prices is well documented, but domestic demand also has held up surprisingly well. University of Missouri economist Ron Plain, PhD, reports that based on preliminary data, , beef demand was up 4 percent in December and up 1 percent for all of 2011. Beef demand was down in 2008, 2009 and 2010, largely due to the economic downturn.
Continued inflation in retail beef prices, however, eventually could threaten domestic and international demand for U.S. beef, resulting in lost market share to other proteins or other beef exporters. To address these threats, Drovers/CattleNetwork will this week launch MoreCowsNow.com, an in initiative intended to supply producers with tools and information to cost-effectively expand their herds.
Fortunately, last-week’s Cattle report shows a slight shift in the long-term liquidation trend for U.S. beef-cow numbers, with the number of replacement heifers up by 1 percent over one year ago. The increase suggests producers in areas with adequate moisture have begun responding to market signals to expand their herds or sell replacement heifers, which have gained considerable value recently.
A state-by-state listing of beef replacement heifer numbers in the report reflects regional differences in precipitation and forage supplies during 2011. Oklahoma replacement heifers are down by 15 percent and the Texas figure is down by 10 percent.  In contrast, beef replacement heifers are up by 29 percent in Colorado, 17 percent in Iowa, 18 percent in Nebraska, 14 percent in South Dakota and 18 percent in Wyoming.
If weather conditions allow it, the trend toward more heifer retention is likely to continue and accelerate over the next few years. Until significant numbers of those additional heifers produce calves, and those calves reach market weights, calf and feeder numbers will remain tight. Prices for all classes of cattle are likely to continue upward, as will retail beef prices. The next couple years will be interesting times in the U.S. beef business.

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Are You Ready to Buy American?

The big three American car manufacturers have come back from hinterland. Some reviews actually claim that many US products are either at or very close to the cutting edge in their respective class. The Ford Focus might become the best selling car in the world, The Cadillac ATS is challenging BMW 328 for becoming the sporty performance sedan, Chrysler is setting sales records with its Challenger and Ram and then there is the Vette, a best buy for the money of any sports car in the world.

Are you ready to buy American? Read the following recent sales report and write your comments under your own name.

Chrysler reported U.S. sales up 14% in August vs. a year ago -- driven by a 19% increase for its Ram pickups.
Ford sales rose 13%, also led by pickup sales, while GM rode good sales for Chevy cars to a 10% gain in the U.S. for August.
CHRYSLER: The Fiat-owned company sold 148,472 vehicles in the month, more than 25,000 of them pickups. It was the best August for Ram since 2007. Helping drive those sales likely were deals -- incentives on the Ram 1500 pickups averaged $4,289 in the month, according to Edmunds.com.

European makers: VW sales boom -- again
Asian makers: Honda, Toyota boom; tight supply limits Hyundai

The company just refreshed its Ram 1500 flagship pickup with upgrades and a new V-6 and 8-speed transmission combination that raised fuel mileage by 25%.
Other highlights:

• Dodge was the volume leader, with more than 47,000 vehicles sold, up 13% and the best August since 2005. The Avenger and Challenger had their best August and the Journey crossover had its best month ever. The Grand Caravan minivan was up 35%. Worrisome for the brand: The redone Durango 3-row SUV was down 45% to 2,884 sold.
• The new 2013 Dodge Dart compact, ramping up production now in its third month out, had sales of 3,045.
• The Fiat brand, still getting established with the 500, was up 34% from a year ago to 4,150 sold.
• Chrysler brand was up 25%, also the best August since 2007, and the big 300 sedan was up 65%, while the Town & Country minivan was up 30%.
• Jeep brand sales rose just 5%, but it was the best August for the brand since 2003 on strong Wrangler and Grand Cherokee results.

Ahead of today's sales reports, analysts have predicted a strong month, up 15% to 20% from last August, with an annual sales rate for the month north of 14 million.
FORD MOTOR'S F-Series pickup trucks -- the best-selling U.S. vehicle this year -- drove a 13% rise in the company's U.S. sales to 197,249 vehicles. F-Series sales were up 19% and it was the volume leader at 58,201 trucks sold.

CAPTION

By Ford

Also showing strong sales growth were new 2013 Escape and outgoing 2012 Fusion. Ford sold 28,188 of the new Escape, up 37% over the old model a year ago. And sales of the Fusion -- ahead of the redesigned 2013 model due this fall -- were up 21% to 21,690.Sales of the Focus compact were up 35% to 19,073 and Mustang rose 12% to 6,387.
Ford said it added a third shift at its Louisville Plant in August to build more Escapes, which was its fastest turning vehicle in the U.S. in August. And it said its more-profitable retail sales overall were up 19% vs. a year ago.
GENERAL MOTORS' August sales were up 10.1%, powered by Chevrolet cars, though all four GM brands were up.
GM credited heavy ads during the Olympics for boosting with Chevy car sales 25% in August vs. the year-ago month. Trucks underperformed cars, though, and Chevy's overall increase for the month was 11.3%.

CAPTION

By GM, Wieck

Chevy's Sonic subcompact, Cruze compact and Volt extended-range electric compact sedan all set records. Volt wound up at 2,831 for the month, even better than the 2,700 Chevy had predicted last week. Sales of the Chevy Spark mini-car continued to climb."Small-car performance is what's most impressive about GM's numbers today. Cruze, Sonic, and Spark were all unknown nameplates just a few years ago, but now they almost equal the volume of Silverado (full-size pickups), the core of Chevy's identity," Edmunds.com analyst Jessica Caldwell says.
Chevy Equinox SUV posted its best August sales ever, GM reported.
All-in, GM sold 240,520 cars and trucks in August, up from 180,922 a year earlier.
Other brands:

• Buick was up 12.4%, aided by rising popularity of the Verano small sedan. Best August since 2006, Buick says and on track for best year since 2006.
• Cadillac was up 11.3%, helped by the new XTS big sedan.
• GMC, which sells only trucks and SUVs, rose just 3.7%, despite strong performance by the Terrain and Acadia SUVs.