Saturday, June 07, 2014

"Human Shields": A Thought About the Economics of Coal Mining Employment

In this piece, Paul Krugman highlights that total employment in coal mining has declined from 250,000 jobs in the U.S in 1980 to roughly 80,000 today.  He makes the important point that coal extraction firms have substituted from labor to capital and that this input switching has decimated this industry as a creator of high paying jobs for low skill workers.  He stresses that technological change (not environmental regulations and liberals environmentalists) have caused this contraction of this sector of the economy that is concentrated in poor places such as West Virginia.

After reading this piece, I had a new thought.  Suppose you own a coal mine and you seek to maximize the present value of your profits.  Wouldn't you have an incentive to make sure that you continue to have some actual workers working at your plant to reduce your regulatory burden?  Since machines do not vote and do not garner sympathy from elected politicians, a firm that substitutes completely from labor to capital will have less voice in the regulatory process. If a firm continues to have actual workers, they act as "human shields" reducing the likely regulatory burden the capitalist will face because he can credibly threaten to fire these workers.

While economists such as Michael Greenstone and Erin Mansur and myself have written about the employment consequences of environmental regulation, none of us have written about the pre-emptive effect that a firm might keep its employment high in part to reduce its future regulatory burden.   Bigger firms have more clout in the political process and during a time of job insecurity such firms might be able to mobilize their political representatives to fight hard to "protect jobs".  I doubt that such politicians would fight as hard to "protect capital".

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