Sunday, October 24, 2010

A Walk in West Los Angeles Reveals Some Neighbors Who Oppose AB32

My son had a playdate at a friend's house in Rancho Park.  As I walked from Rancho Park back to Westwood, I saw the house whose picture I display below.  This is a typical home in West LA but note the sign on the front lawn; " Yes on 23:  Save Jobs".    This "bumper sticker" is making a strong causal claim but I see no footnotes or econometric evidence tied to these 5 words.  Perhaps we should think this through.





I know how to "save baby seals" but how do we "save" jobs?

Supporters of Proposition 23 (which would stall AB32 --- the carbon fighting California regulation) are claiming that AB32 will raise electricity prices and that footloose employers will leave California for China or Nevada and that the end result will be fewer jobs for Californians.

I have argued that AB32 will simultaneously raise some firms' cost of production but it will create new business opportunities for other firms.  Some of these firms who will benefit haven't even been born yet and thus can't lobby for themselves. 

Erin Mansur and I will soon release a new working paper where we study how "footloose" are 21 different major manufacturing industries with respect to electricity prices.   In english, which manufacturing industries would be responsive to spatial differences in electricity prices?

Permit me to "name names"


Industry NAICS

1.  Primary Metal Manufacturing 331

2.  Paper Manufacturing 322

3.  Nonmetallic Mineral Product Manufacturing 327


So for manufacturing firms in these industries, there is some truth to the claims that AB32 could displace some of these jobs out of California.  But, I don't believe that California's stake in these industries is that large.  Cities that are home to such industries can always approach Sacramento for "carrots" to offer these incumbent firms to convince them to stay rather than to move to a less regulated state such as Nevada.  Minimizing the possibility of these industries migrating to another state is not a good reason to vote yes on Prop 23.

We analyze 21 major manufacturing industries and find for the other 18, that higher electricity prices would not significantly impact the propensity of these industries to get up and leave.   Another study by Olivier Deschenes concludes that there is no correlation between state electricity price growth and state level manufacturing job changes. 

As I think about AB32 --- it will have no impact on short run employment and in the medium term it will set credible policy signals encouraging the growth of the California "green economy" and this will shift the composition of California's employment growth into industries that are likely to have great promise as the world takes the climate change mitigation and adaptation agenda more seriously in the decades ahead.

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