In spite of the Solyndra scandal, the President and other policymakers still believe that the path to grow the economy is through subsidies and special treatment for “green jobs.” The Institute for Energy Research has been critical of green jobs programs from the start. The fundamental flaw of green jobs policy is that these programs are frequently based on flawed economic logic.
Last week IER Senior Fellow Robert Michaels testified before the Subcommittee on Water and Power of the House Natural Resources Committee and his testimony touched on green jobs. Michaels, an Economics Professor at California State University, Fullerton explains the proper way to think about green jobs policy as it relates to energy:
1. The proper goal of energy policy is to support the efficient provision of energy. The lower the cost of energy to the economy, all else equal, the higher will be job creation and economic growth outside of the energy sector. Raising energy costs by forcing the use of uneconomic technologies that create more job slots will have exactly the opposite effect. Put simply, more workers in energy reduce the production of non-energy goods and services.
2. Any analysis of job creation by green energy must consider the simultaneous effect of job destruction. Policies that raise the cost of energy to households and businesses must leave them with fewer funds to spend elsewhere. Such policies include the spending of tax revenues to support green activities instead of other government purchases or returning the funds to taxpayers. To a first approximation the net effect of such programs on employment will be zero. This is particularly important here because the new job slots are often visible, while the losses are dispersed among the thousands of goods and services that households and businesses will spend less on. Jobs that cost more to create will generally have higher costs in terms of lost jobs elsewhere.
3. Double counting of jobs and unrealistic assumptions about labor markets.
Although they seldom say so explicitly, the models that underlie most studies of green energy and job creation assume that there is a limitless pool of idle laborers with just the right skills to fill the job slots created by the spending. As always happens in labor markets, many such jobs will in fact be filled by already-employed workers, whether the nation is in prosperity or recession. Even if green policies moved massive amounts of labor between jobs they would have little impact on the national unemployment rate.
Until the President and others who would try to advance green jobs policy understand these three points, their policy prescriptions will not help advance the economy.
 Some of these are adaptations of statements that originally appeared in Robert Michaels and Robert Murphy, Green Jobs: Fact or Fiction? (Institute for Energy Research, Jan. 2009).