Economist Writing Every Day

I’m James Bailey, an economist at Providence College who studies how government policies affect health care and the labor market. Thanks to Joy for the chance to join the blog for a few months!

For my first post, I have to share the brand new book I wrote a chapter of, “Regulation and Economic Opportunity: Blueprints for Reform“. Normally academic volumes like this are sold for hundreds of dollars, so only a few people with access to academic libraries end up reading them. But the publisher of this volume, the Center for Growth and Opportunity, released it as a free Ebook– so I hope you’ll check it out. It covers everything from housing and health care to energy and education to beer and cigarettes.

I wrote chapter 5, on how various regulations affect wages and employment. Here’s an excerpt:

“Remember: Bad Jobs Exist

We have now examined the simple economics explaining how various regulations affect employment and wages. A noneconomist may assume I intend to argue that the regulations that kill jobs and cut wages are bad, while the regulations that create jobs and raise wages are good. But neither of these inferences is necessarily true. To draw conclusions about the overall costs and benefits of regulation, we need to look a bit deeper.

Bad jobs exist. When regulation kills a bad job, most people are made better off. When regulation creates a bad job, most people are made worse off. By “bad jobs,” I don’t simply mean menial or low-paying jobs, but rather jobs that destroy more value than they create. Most jobs involving manual labor or low pay are not bad in this sense; for instance, sanitation and food preparation generally create great value.

Instead, one archetypal bad job might be manager in a lead paint factory. The job may have paid well and carried some status, and lead paint was a product that many people were willing to pay for. But it also contributed to a mass poisoning that made the world a dumber and more violent place,^[1] and these costs almost certainly outweigh the benefits of lead-paint-factory jobs and longer-lasting paint. The regulation banning lead paint certainly reduced employment in the short run, and this should be counted as a cost of regulation, but a job-killing regulation may nevertheless be worthwhile if it brings sufficient benefits to others.

Conversely, a job-creating regulation is not necessarily a good one. Besides the manager of a lead paint factory, another archetypal “bad job” may be that of the bureaucrat who must approve beneficial activities. Suppose an activity is generally beneficial and carries no special risk to consumers or the environment, yet a regulation requires it to receive bureaucratic approval before proceeding.^[2] The regulation may create bureaucratic jobs, and the recipients of those jobs will appreciate the salary, but the regulation that created their jobs can only delay or deny benefits to others. Everyone would be better off if the regulation were repealed, even if the bureaucrat received the same salary for doing nothing.^[3]

While the labor-market effects of regulations are important, they are far from the only cost or benefit of regulations, and do not themselves constitute sufficient grounds for accepting or rejecting a regulation. There’s a reason why this study of labor-market effects is only one chapter in a larger work on regulation.

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^[1] Nevin, “Answer Is Lead Poisoning.”

^[2] Think, perhaps, of selling flowers, which requires a license in Louisiana: Shoshana Weissmann and C. Jarrett Dieterle, “Louisiana Is the Only State That Requires Occupational Licenses for Florists. It’s Absurd,” USA Today, March 28, 2018.

^[3] A similar logic holds to a lesser degree for “make-work” jobs (in the purest form, think of digging a hole and filling it in again). While these jobs do not actually harm others, they are simply an unnecessarily costly way of transferring money. If the goal is to make workers better off, forget about the make-work and write them a check. See also Travis Wiseman’s chapter on unproductive entrepreneurship (chapter 4 in this volume).

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