Why Does Benefit-Cost Analysis Seem Blind to Job Impacts? Open Access
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My chapter in a new book published this week, Does Regulation Kill Jobs?, explores some of the reasons why the human welfare metric, as it is typically calculated in a BCA, appears to be insensitive to the employment effects that loom so large in the perceptions of the public and its elected representatives. It argues that, to a first approximation, employment effects are already counted in a BCA as a component of compliance costs. Of course, no BCA is ever complete, so it is always possible that some job-related welfare effects are omitted, just as it is likely that some other welfare effects unrelated to employment are also omitted. Any attempt to include additional categories of welfare effects must, however, confront the problem of potentially counting these effects more than once. The chapter concludes that, in most cases, employment effects should be treated as they traditionally have been treated—implicitly part of the calculation of compliance costs—and that some proposed alternatives to the status quo would result in double counting. It would be helpful, however, if economists could do a better job of educating the public about what, exactly, compliance costs represent. If people understood that these are not simply a “cost of doing business” but real welfare changes experienced by the public, then benefit–cost analysis would be a far more informative tool than it is today.