Behind the 'Green Jobs' Curtain: Economic Fallacies and Counterfacts

By Nick Sibilla and Todd Wynn -- October 6, 2011

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

– Henry Hazlitt, “The Lesson,” Economics in One Lesson. (1946, et seq.)

Solyndra’s impending liquidation, replete with 1,100 layoffs and U.S. taxpayer liabilities in excess of a half billion dollars, has put so-called green jobs initiative of the Obama Administration in negative light.

But make no mistake: recent loan guarantees from the U.S. Department of Energy to new solar projects to beat a September 30th funding cutoff is business-as-usual as the foes of oil, gas, and coal desperately seek business traction for an uneconomic energy.

From Climate Alarmism to ‘Green’ Jobs

With unemployment on the rise and new jobs scarce, politicians are keen to create employment, at least the visible kind that they can sum up for the public. And so yesteryear’s talk about addressing global warming (remember cap-and-trade?) has taken the back seat to policies geared towards restarting the sluggish economy.

Indeed, more Americans have grown skeptical about potential threats posed by climate change. According to a recent Pew Research poll, fewer Americans believe that global warming is a real threat than they did five years ago. A similar poll found that the top two priorities for Americans were the economy and jobs, while global warming ranked dead last.

So now, the sales pitch for forced energy transformation revolves around catch phrases such as the “renewable energy economy,” “green jobs,” and “leading the world in clean energy technologies.” In short, environmental policies have been rebranded as job creators.

What is a ‘Green’ Job?

Our report, The Dirty Secret Behind Clean Jobs, reveals numerous flaws with this approach. The definition of “green jobs” is vague; green job subsidies are based on flawed economic principles; and assumptions for job growth are inaccurate or downright false.

One is the shifting definition of what is a ‘green’ job. Is a green job a new job that has been created by a new environmental initiative? Or when an existing job has been made more environmentally friendly? Maybe both?

And what exactly is ‘green’ and not ‘green’? Often this term itself is based on dubious assumptions about economics, environmental impacts, etc. Indeed, some green initiatives have turned out to be more damaging to the environment than the status quo.

For example, ethanol is seen as a renewable fuel; and thus, those involved in its manufacture have green jobs. But according to a recent report published by the EPA, refining ethanol can actually emit more greenhouse gases than gasoline. Green jobs are not always green.

Despite the arcane wordplay and various definitions, environmental organizations and policy makers have claimed that the U.S. will see significant increases in green jobs. The media will often cite studies showing that green jobs have grown substantially and the rate of growth has outpaced other sectors of the economy.

Unfortunately for green job advocates, the low base numbers for green jobs means that percentage-wise, green job growth will seem impressive. But in absolute terms the economy may have added only a few jobs in this loosely defined labor sector. Furthermore, some of this growth in green job creation might not even be new jobs.

Many of these green jobs are simply jobs shifted from other sectors, or current employees with new green responsibilities. Denmark, a pioneer in wind energy, demonstrates the prevalence of such shifting. CEPOS, an independent Danish think tank, determined that approximately 28,000 people in the country were employed in the wind industry, but only one in 10 was a new job. In other words, 90% of these green jobs were simply positions shifted from one industry to another. This is hardly a recipe for growth.

But truly a “clean/green job” turns out to be just another term for big government. According to The Brookings Institution, the industry of “regulation and compliance” (i.e., government employees) was the fourth largest source of clean jobs in the United States. Surprisingly, the top sector for clean jobs was not installing sleek new solar panels or manufacturing electric cars, but “waste management and treatment” (386,000 jobs).

In other words, trash collectors. Rounding out the rest of the top four were “mass public transit” (350,000 jobs), conservation (315,000), and “regulation and compliance,” i.e., government employees (141,000).Should the 21st Century economy really depend on hiring more trash collectors, bus drivers, and bureaucrats?

Invisible Job Losses–Enter Economics

Henry Hazlitt in Economics in One Lesson explained how resources spent in one direction cannot be used in another, and how government jobs ipso facto crowds out private employment–and leaves everyone poorer. As he wrote:

It is obvious in the case of a subsidy that the taxpayers must lose precisely as much as the X industry gains. It should be equally clear that, as a consequence, other industries must lose what the X industry gains. They must pay part of the taxes that are used to support the X industry. And consumers, because they are taxed to support the X industry, will have that much less income left with which to buy other things. The result must be that other industries on the average must be smaller than otherwise in order that the X industry may be larger.

But the result of this subsidy is not merely that there has been a transfer of wealth or income, or that other industries have shrunk in the aggregate as much as the X industry has expanded. The result is also (and this is where the net loss comes in to the nation considered as a unit) that capital and labor are driven out of industries in which they are more efficiently employed to be diverted to an industry in which they are less efficiently employed. Less wealth is created. The average standard of living is lowered compared with what it would have been.

Green job estimates do not account for job losses in other sectors. Unfortunately for the taxpayer, many reports supportive of green job creation schemes do not include the number of job losses. Since using green power may displace the use of coal, oil, and other “dirty” fuels, green jobs will also displace those currently working in the fossil fuel industry. In other words, one must take into account the opportunity cost of creating a green job through government intervention.

Any increase in green jobs through government intervention is likely to have a negative effect on existing jobs in a number of ways. First, there will be job losses resulting from the crowding out of less expensive, conventional forms of energy, i.e., replacing a coal plant with a wind farm.

Next, there will be job losses in energy intensive sectors. As conventional forms of energy are replaced by more expensive, less reliable forms such as wind power, higher energy prices will increase the cost of doing business, thereby making energy-intensive U.S. companies less competitive. Spain, a pioneer in renewable energy before the recession, is a sobering example. A recent Spanish economic analysis revealed that for every green job created, more than two jobs were lost.

More Cost, More Jobs: A Perversion

Many claim the green power industry is much more labor-intensive than the fossil fuel industry. Green jobs advocates, like former Green Jobs czar Van Jones, praise wind and solar for needing to employ more people than fossil fuels. Indeed, according to President Obama, businesses that lack labor-intensity are responsible for the nation’s high unemployment:

There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.

In other words, President Obama has fallen for the labor intensity fallacy: the idea that businesses must employ many people to provide jobs.

However, this is not a characteristic of a prosperous economy. It is a sign of inefficiency. If green industries are praised for their labor intensity, then why not mandate wind turbines, solar panels and other green technologies to be made of shoddy materials? This would ensure plenty of jobs manufacturing, replacing, and maintaining inferior equipment. Better yet, pay workers to physically turn the wind turbines when the wind stops blowing.

Can you imagine the ridiculousness of a series of pullies and ropes with thousands of previously unemployed Americans working to create “wind” energy? This would create thousands of jobs, but what is overlooked by misinformed politicians is the actually productive activities these workers could be engaged in instead of using physical labor to create a negligible amount of energy.

In the end, environmentalists should not base their calls to action on specious claims of job creation and policy makers should be wary of attempting to jumpstart the economy with flawed initiatives. As a way to end unemployment, creating new green job schemes and subsidizing green companies is not the answer. The idea of promoting green jobs is plagued with vague definitions, empty promises, and ignorance of basic economic principles.

Conclusion

Clean jobs have a dirty secret: They will not put Americans back to work.  And they leave Americans as consumers and taxpayers poorer. Timeless economics and current facts (think Solyndra) reach the same verdict.

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Nick Sibilla is a research associate at the Cascade Policy Institute of  Oregon. Todd Wynn is Energy, Environment and Agriculture Task Force Director at the American Legislative Exchange Council (ALEC) in Washington, D.C.