Energy development and urban employment creation: The case of the city of Los Angeles

Energy Vol. 6. No. IO, pp 104~1052. Printed in Great Brirain.

1981

03~5M2/81/1010(1-LMnMlO Pergamon Press Ltd.

ENERGYDEVELOPMENTANDURBANEMPLOYMENT CREATION:THECASEOFTHE CITYOFLOSANGELES ADAMROSE,DAVIDKOLK,and MICHAEL BRADY Department of Economics, University of California, Riverside, CA 92521,U.S.A.

and ROBERTKNEISEL Energy Office of the Mayor, City Hall, Los Angeles, CA 90012,U.S.A (Receiued 14 January 1981)

Abstract-Today government at all levels is being called upon to devise policies which minimize the negative impacts of the energy crisis, while continuing to meet broad social goals such as full employment, This paper analyzes four energy management tactics in terms of their economic viability and ability to generate employment at the local level. They include: (I) solar water heating, (2) weatherization, (3) coal-fired electricity generation, and (4) liquified natural gas distribution. In general it was found that new energy options offer a significant number of job openings, though they are by no means a major solution to urban unemployment as some have suggested. Also, the time-path and pattern of employment gains must be evaluated carefully by policy-makers if labor force dislocations are to be avoided. 1. INTRODUCTIONt

The past decade has been a rude awakening for Americans. The country has been hit by a slowdown in economic growth, an upward spiral in inflation, an increase in unemployment, and the depletion of energy resources. Most of these problems are more pronounced in large cities, with their shrinking tax bases and growing minority and elderly populations least able to bear the strain. Policy-makers have been hard at work devising solutions, but all too often find that the solution to one problem simply exacerbates another. It is encouraging to find policy alternatives which may not involve such hard tradeoffs and may exert several beneficial effects. One set of likely candidates includes non-conventional energy technologies such as solar heating, weatherization, wind power, etc. On the surface, these alternatives are often less expensive than more conventional technologies, non-depletable, environmentally sound, and labor intensive. However, there may be hidden ramifications which reduce the potential of these promises. For example, a new technology may use up more energy indirectly during the course of its construction than it saves during operation. Or it may generate fewer jobs among its supplying industries than would a highly capital intensive conventional alternative such as a coal-fired power plant. The purpose of this paper is to provide information to assist policy-makers in choosing among four alternative energy management tactics (EMTs), with an emphasis on the overall employment ramifications of their decisions. The EMTs, examined in the context of the Los Angeles economy, include (I) solar water heating, (2) weatherization, (3) coal-fired electricity generation, and (4) a liquified natural gas (LNG) terminal. In addition to the research results, the paper includes a presentation of the input-output based methodology and a discussion of policy implications. 2. AN OVERVIEW

OF THE METHODOLOGY

2.1 Impacts of energy options The employment impacts of energy options depend on a number of complex and interwoven factors operating in the economy of a given region: tThis research was funded by the LOSAngeles Mayor’s Energy Office. We wish to thank Mark Braly and Darwin Hall for their helpful suggestions. Of course, any remaining errors or omissions are solely the responsibility of the authors. Also, views expressed in the paper are those of the authors and are not necessarily shared by the agency and institution with which they are affiliated. 1041

1042

A. ROSEet al.

(a) Energy development and use effects. (I) Direct versions include the workforce employed in the extraction of fossil fuels, and in the construction, operation and maintenance of power plants, solar heaters, etc. (2) Indirect versions include the workforce needed to produce materials used in extraction, construction, operation and maintenance, e.g. drill bits, turbines, pipes, lubricants, legal services, etc. (3) Induced versions include the workforce needed to produce goods and services demanded as a result of income generated by the energy option directly and indirectly, i.e. increased purchases of food, shelter, entertainment, etc., and the inputs needed to produce them.t (b) Respending efects. A workforce is needed to produce goods and services demanded as a result of the increased purchasing power associated with a relatively cheaper energy option. For example, a family may be able to buy a BTU equivalent more cheaply from a new option than their current source and thus have money left over to buy other items. (c) Locational attractiveness efects. The workforce is stimulated by business and population moving into an area because of relatively cheaper energy (as in the shift to the Sun-Belt). (d) Displacement efects. Decrease in the workforce is caused by drawing factors of production from other pursuits to the energy option being analyzed. For example, a dollar spent on a power plant by a municipality is likely to cause a reduction of other services, possibly causing a net reduction in employment. This effect is muted somewhat if total local government budget expenditures are not fixed, if federal and state subsidies are available for the energy option, or if private capital is attracted from outside the region. (e) Structural efects. Changes in the workforce emanate from energy inspired productivity changes, new innovations, or alterations in consumers tastes. An example is the retraining of the unemployed, especially minorities, for jobs in nonconventional energy industries. The relative prominence of these factors depends primarily on the energy option being considered, institutional arrangements such as taxation and financing, and the structure of the regional economy. For example, the relatively more economical the option, the greater the direct respending effect. The greater the involvement of the state and federal government in energy conservation, the less the displacement effect. The more sophisticated and self-sufficient the economy, the greater the likelihood that initial effects will be transmitted to other economic sectors and result in large secondary or multiplier effects. Most studies to date have focused on the direct impacts of energy development and use, ignoring the more subtle secondary impacts and less tractible locational and structural effects. Since the L.A. economy is quite large and self-sufficient, direct expenditures are likely to lead to prominent secondary rounds of spending. Though they are difficult to measure, a high priority in developing an empirical methodology for this study was accorded to indirect and induced impacts. Initial respending and displacement effects are also likely to be significant, but can easily be calculated without an elaborate model. On the other hand, the significance of locational attractiveness is almost impossible to determine a prior’ and extremely difficult to model in any case. Furthermore, it requires a great deal of information or number of simplifying assumptions about energy prices and availabilities in other regions.

2.2 Input-output analysis It has long been acknowledged that the most practica! and often the most accurate way to determine indirect and induced economic effects of a policy decision is through the use of an input-output (I-O) mode, a valuable economic modeling approach developed by Nobel laureate W. Leontief in the 1920s and 1930s.’ Since then, I-O models have been used extensively by researchers and policy-makers at the national level and, more recently, by local planners and members of the business community. Input-output analysis is based on a linear model of purchases and sales between sectors of the economy.S These interactions between sectors are presented in tabular form (the I-O table) and represent an explicit set of economic accounts for a given geographic area. tAll of the remaining effects generate indirect and induced counterparts as well. *The reader is referred to Leontief’.’ for a more formal presentation of input-output analysis,

Energy

development

and urban employment

1043

creation

An aggregated I-O table for the metropolitan Los Angeles economy is given as Table 1.t Each entry listed down the side of the table represents uses of that industry’s products by the industries listed along the top.S The two lists are identical for the sake of orderliness and represent a form of double-entry bookkeeping. For example, the table indicates that $25.5 million worth of chemicals (Industry 7) are purchased by agriculture, $131.3 million are purchased by the primary metals industry, etc. Total purchases of chemicals and plastics, listed at the end of the row, are $21,216.2 million. Likewise, total production of chemicals and plastics, entered as a column sum, also is $21,216.2 million. This sum represents the cost of all the processes, material inputs and primary factors of production (labor, capital, and natural resources) paid for by the industry in a given year plus a profit margin, Purchases of goods and services for final use (consumption, investment, government operation and export) are presented in the rightmost columns of the table. The total of these “final demands” is analogous to gross national or regional product. Corresponding to this are the lowermost rows of the table in which payments to primary factors are analogous to national or regional income. A way of standardizing the presentation of the I-O table is to translate all the entries to a per unit basis. This procedure involves dividing each entry in a given column by the sum of the column. The result is referred to as a structural matrix which presents the value of direct inputs needed to produce a dollar worth of output in each industry. This allows for an easier comparison of input intensities since entries are not obscured by variations in scale of operation. A variant of this table known as the “Leontief” inverse can be even more revealing. Each industry already knows through its own bookkeeping what its direct input requirements are: the inverse matrix. however, encompasses direct and indirect requirements. For example. in addition to showing the value of chemicals needed to produce $1 of refined petroleum, it reveals the value of chemicals needed to produce electricity to produce refined petroleum. the value of fabricated metals used in railroad hopper cars to transport coal to produce electricity to produce refined petroleum, ad infinitum. This method gives individual economic units and planners an even better indication of economic interdependence and enables the analyst to predict some of the hidden ramifications of policies. The input-output table provides many insights to the Los Angeles economy. In the more disaggregated table used in the analysis below, 80 of the 83 possible product classifications are represented, meaning the economy is well-diversified and sophisticated. Most of the intermediate sector entries are non-zero, indicating a high level of interdependency in the economy. Imports represent only about 12% of gross output, so that there is also a high degree of self-sufficiency. All these factors substantiate, in a more rigorous and detailed way, our earlier claims that secondary. or “multiplier”, effects cannot be ignored in assessing the potential employment generation by EMTs in the City of Los Angeles. 3. A BRIEF

DESCRIPTION

OF

THE

ENERGY

MANAGEMENT

TACTICS

Four EMTs were examined in this study, three of them being so-called “new” energy sources and one a conventional alternative. Each of them is described briefly below. The description refers to a specific version of each option, there being several variations on each theme. The solar water heater (SWH) option is comprised of three components: the collector. the transfer system, and the storage area. It is in the collector that water is heated by solar radiation. Each collector consists of a glazed, insulated box, constructed of sheet metal, as well as an absorber plate and flow passages which will allow it to carry the water that is to be heated. The transfer of heated water from the collectors to the storage area can be accomplished by the use of an electrically driven pump. A control device measures temperatures tThe table was constructed by Everard Lofting? by applying a variant of the “location quotient” technique to the 1977 U.S. Input-Output table. The location quotient technique has been evaluated by Morrison and Smith4 as the best of the purely non-survey (secondary data) methods of constructing an I-O table. iNote that the majority of the categories listed down the left-hand column of the table and across the top refer to goods and services. There are numerous classification schemes which could be used including various aggregations and disaggregations of those presented. Typically, however, products are grouped only when they are similar in terms of the materials needed to produce them and similar in terms of how they are used. ECY Vnl 6. No IL-F

40.5 2.7 89.7 178.6 451.8 42.0 43.3 74.2 533.6 376.4 1125.2 12M.O 47.1 195.1 1L4092.7 18948.1

11975.3

Agriculture Mining Construction Ordnance Food Products Wood and Fiber Products 7 Chemicals d Plastics 8 Primary Metals 9 Machinery 10 Electrical Equipment 11 Transportation h Commerce 12 Trade 13 Finance 14 services 15 Government Enterprise 16 Miscellaneous Value Added 15883.8

0.0

0.0

22724.2

3.5 569.3 1.0 16.2 28.7 361.6 15.8 63.4 37.0 419.0 333.1 2544.7 1455.7 69.5 178.4 15361.6

79.0

13

1258.5

2.5 66.0 0.0 11.9 32.1 79.1 33.7 209.4 30.4 41.2 12.1 59.2 0.6 20.9 541.7

26965.9

14 10.0 0.0 177.3 0.0 80.9 53.2 1602.3 121.2 244.7 404.7 1278.2 719.2 1452.8 5423.5 60.6 412.9 113351.6

1562.2

765.5

1313.9

21216.2

271190.9

115262.3

14812.0 15457.2 15197.9 819.7 9.9 7910.4

5755.6

5151.7 Gross Output 762.6 1365.8 7037.2 1258.5 7401.9 6787.6 21216.2 4775.8 5151.7 15883.8 11975.3 18948.1 22724.2 26965.9 1313.9 1562.2 82538.4

806.2 321.7 103.8 193.3 157.0 166.2 1.7 69.1 2243.1

502.6

13.4 1.6 0.7 29.1 146.7

0.0

9 0.0

4775.0 Final Demand 260.3 3.7 6486.1 1093.7 5695.9 3970.0 12140.9 883.9 2981.3 11555.0

0.0 0.2 15.8 0.8 0.0 40.0 131.3 755.7 123.0 49.6 152.2 142.6 77.8 125.9 1.0 210.2 1762.4

0.5 1041.5 185.1 0.5 57.0 324.1 3589.0 192.7 86.9 77.4 758.2 371.7 692.8 1016.2 9.2 106.1 4615.1

lb 1.9 0.0 0.0 3.1 265.9 61.1 176.4 59.5 14.1 71.6 480.5 67.2 0.2 122.5 0.0 0.0 0.0

7401.9

a

7

15 0.0 0.0 67.3 0.0 0.0 1.1 29.6 0.3 1.2 2.1 234.2 10.1 17.5 53.4 0.7 4.0

6787.6

16.3 0.0 1112.7 193.2 3G4.4 166.1 13.6 2.0 231.2 257.4 93.1 310.0 1.8 23.5 1828.5

0.0

6 3.8 0.2 13.2 0.9 1.0 1304.7 282.2 120.2 19.8 41.7 156.2 237.9 138.6 163.6 3.3 45.5 2358.0

Buyers 5 4 319.9 0.0

tTotals will not add because of rounding and the omission of import requirements.

Total Outputt

1 2 3 4 5 6

12 17.6

11 0.5 230.4 183.8 0.0 38.5 22.2 551.9 25.1 10.3 101.7 1302.1 221.4 336.1 488.9 290.4 72.7 7131.1

10 0.0 0.1 40.4 87.0 6.4 267.5 616.1 1063.0 575.6 2745.8 326.4 471.7 348.5 670.1 6.5 179.6 6095.9

7837.2

1365.8

762.6

0.7 21.0 7.8 18.7 9.4 10.7 6.6 144.7 21.5 0.0 11.4 823.0

0.0 0.0

Total Outputt

0.0

3.1 0.0 36.7 12.6 25.5 2.1 0.9 0.7 14.2 25.3 24.0 12.3 0.0 1.7 327.0

3 18.3 15.7 1.5 0.0 0.0 265.0 752.5 738.0 114.8 178.6 180.0 660.5 101.3 472.0 1.1 40.5 3395.2

2 0.0 70.5 20.9

jkll?XS 1 Agriculture 2 Mining 3 Construction 4 Ordnance 5 Food Products 6 Wood h Fiber Products 7 Chemicals b Plastics 8 Primary Metals 9 Machinery 10 Electrical Equipment 11 Transportation h Comme:rce 12 Trade 13 Finance 14 services 15 Government Enterprise 16 Miscellaneous Value Added

1 50.3

Table I. Input-output table for Los Angeles county, 1977(in millions of dollars).

Energy development and urban employment creation

1045

in the collector and storage areas and switches the pump on when the collector temperature reaches a certain number of degrees greater than the temperature of the storage area. The water storage system itself consists of an insulated 300 gallon water tank.5 The cost of an individual solar unit is $1883 (in 1977 dollars): with about two-thirds of the input components manufactured in L.A. Given the energy savings from the SWH, the pay-back period is 13 yr, meaning there will be no respending effect from this option over the policy period analyzed in this paper (1980-91). The weatherization package is based on a conservation approach to the problem of obtaining efficient use of energy resources. The installation of the weatherization package will thus reduce the consumption of energy without reducing comfort. The major component in the weatherization package is cellulose ceiling insulation. Weather-stripping, a clock thermostat, a low-flow showerhead, and a water heater blanket complete the package considered here.6 The cost of an individual weatherization package is $832 (in 1977 dollars)6 with about two-thirds of the components being manufactured in L.A. The pay-back period for this option is a mere 3 yr. The coal-fired power plant considered is the Intermountain Power Project (IPP). It is a proposed 3000 MW, generating station located in south central Utah expected to cost $2 billion (in 1977 dollars).’ IPP is being designed and built under the supervision of the Los Angeles Department of Water and Power (LADWP), for the Intermountain Power Authority, a Utah public agency. The plant is composed of four 750 MW, units. Coal delivered to a unit is burned in a boiler, creating stream, which powers a turbo-generator, producing electricity. Water for the steam systems and cooling systems is provided by deep wells. Several large banks of cooling towers reduce the temperature of the water for re-use in the steam cycle. Coal to fuel the plant will be mined at nearby existing and new underground sites and transported to the plant by rail. Electricity from IPP will be transmitted over several high voltage transmission lines to various points in Utah and Ca1ifornia.t The only Los Angeles based labor involved directly in the construction of the plant is the initial design and engineering work being done by the LADWP.’ The major employment impact of the plant on the Los Angeles economy will be transmitted through the local production of construction materials, such as pipe, instrumentation, electrical equipment, etc. The liquified natural gas (LNG) option considered is the proposed Point Conception (California) terminal expected to cost $0.7 billion (in 1977 dollars).8 Point Conception will be a receiving, revaporization, and transmission complex. Tankers carrying LNG from Indonesia and Alaska will dock at the facility’s pier and be emptied of their LNG by pump. The LNG will be stored in large cryogenic tanks, awaiting revaporization. The revaporization facility will then convert the LNG into a gaseous state, in which form it will be stored. The stored gas will then be transmitted through a natural gas pipeline and blended into the gas in the existing pipeline network. There are expected to be no Los Angeles area jobs directly created in the construction of the plant. with the exception of a portion of the design and engineering work being performed by Western LNG Associates, Inc., the developers of the project. The major employment impact on the Los Angeles economy will occur through the local manufacture of construction materials for the plant, such as pipe, pumps, structural steel, instruments, etc. 4. DERIVATION

OF THE RESULTS

4. I Preliminary refinements Before performing the impact study, some preliminary refinements of the data and the model needed to be undertaken. These are discussed below, followed by a brief summary of the computational procedures used in the analysis. (a) Upper and lower bound assumptions. Because of the uncertainties surrounding the implementation of the EMTs, it was concluded that a range of estimates incorporating different assumptions would be more valuable than a possible misleading point estimate. Variations in tAs the IPP comes on line, there will be a phasing out of the oil-fired Harbor Generating Station located in LOSAngeles and an accompanying decrease in local employment.

1046

A. ROSEet al.

certain key assumptions, in effect, led to upper and lower bounds of the levels of direct impacts. For the SWH and WP options, these bounds corresponded to (a) all new residences having to be equipped with the option, all existing homes being retrofitted at time of resale, and voluntary adoption for the remainder of the housing stock (upper bound); (b) only new homes having to be fitted with the option and voluntary retrofit otherwise (lower bound).t The effective upper and lower bounds for the proportion of the IPP and LNG options pertain to the proportion of construction materials purchased in the City of Los Angeles. For the former scenario, these were assumed to be 5 and 11%, respectively, based on estimates from the Los Angeles Department of Water and Power and the Southern California Edison Co. The upper and lower bounds for the LNG facility were assumed to be two times those of the IPP plant in view of closer proximity of the LNG facility to Los Angeles. (b) Adoption of energy technologies. Mandatory adoption was based on existing projections of housing construction and resale. For the more complicated case of voluntary adoption of new SWH and WP technologies, a standard “logit analysis” was used. The logit model assumes low initial levels of installation, an accelerating pattern of adoption in the middle years, and finally a declining pace as dwellings become saturated with the new technology (i.e. an overall S-shaped pattern). (c) Financing. Two basic assumptions were made with regard to the cost of capital and the level of loanable funds. Several inquiries indicated a strong likelihood that households would be eligible for low cost energy conservation loads (6.0-7.5%) to cover capital costs of the WP’s and SWH’s, These loans would then be repaid from energy savings over the life of the option. The possibility that loanable funds were tight and that investment in energy options would reduce spending on other consumer durables was also investigated. Indications were that some funds would be earmarked for conservation and not available for other purposes. Secondly, the pool of loanable funds is not likely to be a constant. It is likely to be increased by savings emanating from increased earnings in the industries producing new energy options, as well as in their supplying industries. (d) Estimates of natural gas prices. In order to estimate the amount of money saved through natural gas displacement by adoption of the SWH and WP options, it was necessary to specify price escalation rates for natural gas from 1980-91. The California Energy Commission’ projects an exponential increase in the price of natural gas of 0.0424 from 1980-84,0.0955 from 1985-89, and 0.0200 thereafter. (e) Incorporation of employment and occupational characteristics. In order to calculate the effects of the options on labor force structure, an occupational category matrix was used. This matrix disaggregates employment into 40 different skill categories for each of the 80 industries in the L.A. economy. A “structural” version of the matrix, which contains the number of man-year equivalents in each occupation per million dollars of gross output of each industry, was used in the actual computations.” In addition, we should note that we are assuming a high degree of factor mobility. In the case of labor, this assumption combined with the existence of high unemployment prevents the complications arising from resource bottlenecks and upward pressure on wages in certain occupational categories. (f) Scaling county parameters to city levels. In order to calculate the effects of the four energy options on the City of Los Angeles, it was first necessary to derive results for Los Angeles County and then “scale” them to City levels. This approach is superior to considering the City in isolation because it incorporates trade flows between the City and County. Constructing the I-O model for only the City would result in understatement of the impact of energy options because “feedback effects” (i.e. the trade flows between the City and County) would be omitted. Scale factors were based on City/County employment ratios for each sector taken from a sample of firms in the 1980 Southern California Business Directory.” It was assumed that Los Angeles City residents purchased SWH and WP units from firms located within the city limits, i.e. we projected local self sufficiency. However, this refers only to the final product as it is installed and is consistent with our more basic assumption that the constituent elements of the SWH and WP options are produced according to the current import tThis lower bound assumption corresponds to the ordinance currently under consideration by City of L.A.

Energy development and urban employment creation

1047

ratios. That is, for example, of the $1883 cost of a solar unit, $690 consists of imported materials. The implications of this and the other assumptions will be addressed in the course of the analysis of the results below. 4.2 Computational procedure An 80-sector I-O table of the Los Angeles economy, together with an occupational category matrix, comprise the core of the model used to calculate the effects of the four energy options. In general, the following procedure was followed: (1) a vector of material input purchases was calculated for each option and inserted into the I-O model; (2) the model was run, yielding output changes caused by the inclusion of the energy option; (3) the output change was then used to calculate employment (and occupation) changes. All runs were performed with a closed I-O model to obtain both indirect and induced effects.t 5. OVERALL

ECONOMIC

IMPACTS

The total of direct, indirect and induced employment impacts of the four energy management tactics are presented in Tables 2 and 3. In terms of employment generation between 1981 and 1991, the solar option is definitely superior. The upper bound scenario (mandatory adoption or high local purchase) results in an average increase of 7927 person-yr over the planning horizon. The next closest competitor is the weatherization package with 5881 person-yr. The positive effects of the IPP and LNG options are small because both facilities are to be constructed outside of Los Angeles and have a lower initial impact on the local economy. In fact, the IPP option will result in an average overall decrease in employment, concentrated in the 1988-1991 period, due to the phase-out of a coal-fired generating station within the city limits. The rank order of employment changes is the same for the lower bound scenarios (voluntary adoption or low local purchases), though the relative superiority of the solar option diminishes slightly. Moreover, the phasing out of the Harbor Station looms even larger in that it is projected to eliminate almost as many jobs as solar creates.+ Also very important are year-to-year trends. Under lower bound assumptions, adoption of solar and weatherization technologies increases slowly at first and then at an increasing rate up to 1991. Employment follows this basic pattern, but with a differential between technologies due to the presence of operating costs for SWH’s and respending effects of WP’s. The employment associated with IPP projects peaks in 1986 and is negative thereafter, while the LNG option only stimulates employment for 3 yr. In the upper bound case the greatest employment needs take place in the initial year for both the SWH and WP options. The number of dwelling units left unretrofitted (and for which mandatory retrofit will be applicable at time of resale) declines steadily over time.0 The effect of this decline on employment is stronger than the cumulative effect of operation for the case of SWH’s. However, for the case of WP’s. the employment generating capacity of the cumulative respending effect overtakes the decline in retrofits by 1984 and causes modest employment increases thereafter. The time trend of employment associated with the IPP and LNG projects is identical for upper and lower bound cases. None of the EMT results appear substantial in terms of their proportional effects on baseline employment and output. For example, even the most promising option, SWH’s increases employment by no more than 0.47% and output by no more than 0.46% in any single year. We will see, however, in the discussion below, that these seemingly small proportions take on a much greater significance when presented in the context of unemployment problems. tThe reader is referred to the work of Rose” for a more detailed presentation of the methodology. SNote that all of the results presented in Tables 2 and 3 are net impacts, i.e. any displacement effects have been subtracted from the gross gains. Given our assumptions regarding financing and the likelihood of payback periods within the planning horizon. there are no offsets for the SWH and WP options. Likewise, the gross LNG impacts equal the net since the facility is being built with outside capital and its product is a competitive substitute for conventional power. The reader is referred to Rose et al.” for a detailed presentation of employment impacts distinguishing between construction. operation, respending and displacement components. #The number of units subject to voluntary retrofit is small to begin with and decreases over time. This offsets the increasing percentage of adoptions (recall the logit curve) during the latter part of the planning period so that there is very little interference with the downward trend.

7.927

2442.2

Average .331

0.468 0.429 0.394 0.365 0.340 0.318 0.298 0.281 0.267 0.254 0.241 5.881

7.963 6.896 5.982 5.202 5.246 5.370 5.454 5.517 5.625 5.662 5.727 .244

0.394 0.330 0.276 0.231 0.226 0.221 0.208 0.210 0.205 0.199 0.194

Weatherization increase percentage

-.108

.144 .144 .144 .144 .455 .766 1.004 .226 -.838 -1.460 -1.460 -.004

0.007 0.007 0.007 0.007 0.020 0.031 0.040 0.011 -0.031 -0.051 -0.050

Coal-Fired Plant increase percentage

.186

.624 .678 .733 .790 .845 .897 .957 1.058 1.204 1.439 1.612

.985

2002.6 2080.7 2161.7 2245.9 2333.5 2429.3 2518.7 2617.0 2719.1 2825.2 2935.3

2442.2

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Average

.040

0.031 0.032 0.034 0.035 0.036 0.037 0.038 0.040 0.044 0.051 0.055

Solar Increase percentage

Employment

Year

0.029 0.028 0.026 0.025 0.027 0.029 0.031 0.033 0.037 0.039 0.043 .032

.573 .573 .573 .577 .637 .709 .788 .880 1.004 1.135 1.264 .792

Weatherization increase percentage

0.002 0.006 0.006 0.006 0.012 0.017 0.009 -0.011 -0.043 -0.046 -0.049 -.037

.144 .144 .144 .144 .285 .426 .243 -.305 -1.182 -1.323 -1.464 -.980

Coal-Fired Plant increase percentage

.093

.341 .341 .341 .ooo

.004

0.000 0.013 0.012 0.012 0.000

0.000

0.000

.ooo

. 000

0.000 .ooo

0.000 0.000 0.000 . 000 . 000 . 000

. 000

LNG Terminal increase percentage

.008

0.026 0.025 0.024 0.000

.682 .682 .682 . 000

0.000 0.000 0.000 0.000 0.000 0.000 0.000

,000 . 000 . 000 . 000 . 000 . 000 . 000

LNG Terminal increase percentage

Table 3. Summary of employment impact of energy options of the city of L.A. (lower bound) (in thousands of person-years).

9.390 8.930 8.541 8.228 7.949 7.724 7.549 7.391 7.280 7.092 7.127

2002.6 2080.7 2161.7 2245.9 2333.5 2424.3 2518.7 2617.0 2719.1 2825.2 2935.3

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Solar increase percentage

Baseline Employment

Year

Table 2. Summary of employment impact of energy options on the city of L.A. (upper bound) (in thousands of person-years).

Energy development and urban employment creation

1049

In terms of specific occupational impacts, all options have similar effects. This is because all of the EMTs considered in this report relate closely to construction, maintenance, metal fabrication and trade. Table 4 presents the five major occupational categories affected by each option. Overall, the results indicate that a diversity of skill levels will be needed. 5. INTERPRETATION

OF THE RESULTS

5.1 Standardizing employment impacts Another way of comparing options is to look at jobs in terms of dollars spent, or in terms of Employment Generation Factors (EGFs). It turns out that solar energy’s edge is partly due to the fact that it is more expensive and hence generates the need for more production than weatherization. The number of jobs created per million dollars spent on solar in Los Angeles in 29.24 person-years as compared to an EGF of 55.40 for weatherization (see Table 5). Furthermore, respending effects of weatherization generate more jobs than operating effects of solar. The EGF discussed thus far are based on the amount spent on the option within the City of L.A., irrespective of the source of the expenditure. For IPP or LNG options, where only 5-20% of construction costs are included, this results in low bases (denominators) and misleadingly high EFGs. A fairer comparison would be to use the amount spent by L.A. City residents, irrespective of the location of the option. In the case of IPP and LNG options, this represents total annual outlays for services of the projects and the resulting EGFs (in parentheses in Table 5) are much lower. For most of the EGFs associated with SWH and WP options this distinction Table 4. Rank order of occupational stimulus due to installation of EMTs.

Solar

Weatherizatio"

Coal-Fired Plant=

LNG Terminal

solderers, welders

co"str"ctio" workers, plumbers

Insulation workers

tenmsters

insulation workers

laborers

solderers, welders

insulation workers

construction workers, plumbers

i"S"lSti0" workers

boilermakers, sheetmetal workers

boilermakers, sheetmetal workers

boilermakers, sheetmetal workers

miscella"eo"s clerical workers

misCSllS"SO"S clerical workers

miscellaneous clerical workers

DiSCSllS"S""S clerical workers

co"str"ctio" foremen

inspectors

co"structio" workers

laborers

craftsmen

engineers

plumbers

aThis column refers to occupations displaced.

Table 5. Employment generation factors for energy options in the city of Los Angeles spent or displaced).

Solar

Co"str"ction

Engineering

29.24a

".S.

Weatherization

55.40a

IPP

25.00 (1.45)b

(per milliondollars

LNG

53.03a

(lo.oz)a,b

".S.

102.00 (4.za)b

".S.

operation

11.57

n.a.

".S.

".S.

Spending

".S.

52.00 (zl.w)b

n.a.

".S.

Displacement

n.a.

".S.

-37.71

".S.

SIncludes engineering bNumberS in parentheses explained in text

IO50

A. ROSEet al.

is unnecessary because the technologies are assumed to be purchased entirely within the area. The exception is the respending from WPs. The EGF (in parentheses) associated with total respending is lower than the EGF reflecting only additional purchases within the City limits. 5.2 The results in relation to the Los Angeles economy As with most other large cities today, Los Angeles has a greater proportion of minority, less educated and financially disadvantaged residents than its suburbs or neighboring towns. Unemployment rates are typically a couple percent higher in the City than in the overall metropolitan area.14 While the population and economy of Los Angeles County have grown, the City’s population has declined over much of the last decade. Thus an additional 8000 jobs per year looms much more prominent than the presentation of the previous section might have suggested. Even the average percentage increase in employment of 0.46% takes on a new light when compared to a projected 7.0% annual unemployment rate over the next decade. The 8000 new jobs or 0.33% increase in employment means a 4.3% decrease in unemployment. Moreover, the employment generation factors imply that energy options are capable of stimulating more jobs per dollar spent than would the average mix of consumer expenditures. In fact, the weatherization option promises two-and-a-half times as many. Thus, energy conservation and job creation are not mutually exclusive. The impact on occupational demands is also significant since it bears strongly on future manpower training possibilities and social mobility. A broad spectrum of jobs is called for, both skilled and unskilled. For example, a recent California Public Policy Center Publication entitled Jobs from the Sun” is quite optimistic about rapid upgrading of skills to fill jobs in the solar industry. However, many laborer, clerical and sales positions will still need to be filled. Of course. some of these jobs within the solar and weatherization industries themselves may serve as steppingstones to higher skilled slots and may serve as on-the-job training if no formal programs are implemented. Otherwise, they can provide relief for teenage unemployment. We have thus far kept a discussion of sales impacts in the background. This is partly due to the prespecified emphasis of the study on jobs and partly because sales impacts parallel employment impacts. However, while employment impacts are typically concentrated at the lower end of the income scale, a broader slice of people share the fruits of increased sales. Most of the breadth is due to the secondary impacts often hidden from immediate view. Other important economic indicators are affected as well. Income followed suit behind employment and output. The equality of the distribution of income will be increased by the reduction in unemployment, upgrading of jobs and semi-skilled and crafts categories, and increased profit income to owners of small companies. Also, the individual gain in well-being due to energy cost savings should be felt most strongly by low income groups. The Los Angeles City property tax base should increase by the amount of the energy installations within its boundaries, though this amounts to an increase of less than 0.01%. But, again, a small percentage increase takes on a lot of significance in so crucial an economic indicator. 5.3 Interpretation in fight of other studies Several other studies have been undertaken on the subject of energy and jobs.‘“*’ Generally, our results are compatible with the others, though some important similarities and differences deserve to be singled out. First, other studies have presented multipliers of from 1.5 to 8. Multipliers. if derived properly, should reflect the size, interdependence and selfsufficiency of an economy. However, several of the other studies on the subject contain errors we have taken great pains to avoid, e.g. double-counting of distribution (trade) aspects, omission of overhead items and uemployment, use of outdated I-O tables, improper sector designations and coarse sector aggregations. This study is based on the careful scrutiny of the direct costs of energy options and an I-O table constructed according to the superior non-survey estimating technique. A high degree of confidence is placed in the results, though we acknowledge limitations due to the restrictive assumptions upon which our model is based.t tThese limitations include constant returns to scale production functions and lack of accounting of interindustry effects of wage and price changes due to an energy option. Note, however, that consumer reponses to energy price changes have been incorporated, and that given the size of the energy options, other price changes are likely to be unaffected and wage rates affected only in a small set of occupations.

Energy development and urban employment creation

I051

Another major departure relates to a conclusion by the California Energy Commission that no energy alternative could stimulate as many jobs per dollar for the State and Nation as could a dollar left to the consumer to allocate to his usual combination of purchases. Our results suggest the opposite as far as the City is concerned. The difference stems from the size and composition of the economies examined. The average dollar spent in the City of Los Angeles on solar or weatherization requires successive rounds of inputs produced mainly in the City itself. However, the average dollar of consumer spending soon leaks out, because the City produces very little of some major consumer items or their inputs, such as automobilies and raw foodstuffs. Leakages diminish, of course, as geographic dimensions increase. 6. POLICY IMPLICATIONS

One immediate policy implication is that a job creation policy appropriate for the State or Nation may not be the best course for the City. Energy development or, more precisely, energy conservation will stimulate more jobs than a residential property tax cut, for example. On the other hand, the implications of the California Energy Commission study are quite ominous if taken seriously by State and federal policymakers. On a jobs basis, the City may not be able to expect supporting policies, such as energy tax-credits, from higher levels. While this report should provide the City with much needed information, there are still many tradeoffs to sort out. For example, though the solar option stimulates the most new jobs, weatherization stimulates more jobs per dollar spent (by individual consumers, not the City government). Even the jobs per unit energy savings ratio does not clearly give the nod to the solar option. To some extent, the dilemma is eased because solar and weatherization are not mutually exclusive. Still, a careful analysis of the results presented in this paper will have to be undertaken to find the right combination of energy management tactics to attain the City’s policy objectives. Another issue is associated with the mandatory installation and retrofit scenarios. In the upper bound case the number of SWH and WP related job openings declines after 1981 in the energy sectors themselves. While full compliance may be infeasible? given the significant increase in jobs required in the initial year, the general trend is still likely to be downward toward the end of the planning period. This may pose a serious displacement problem or may serve to discourage people from training for possible short-lived careers. Finally, there is the problem of weighting the employment gains or otherwise putting them in the proper time perspective. Is a new job opening created 10yr hence as important as one opening up tomorrow? Economic conditions change and there is no way to predict relative needs given the uncertainties of the coming decade. Some prominent economists have suggested that market forces associated with the energy situation will have a significant effect on unemployment. ” As energy becomes more expensive, businesses will substitute labor for energy and some energy-intensive capital. Thus, there is the possibility that the market, without government prodding, will resolve some of our unemployment problems by the 1990’s.Still, the issue may be too important to be left to chance. 7. CONCLUSION

In this paper, we have analyzed four energy options in terms of their abilities to provide a low-cost product and to stimulate jobs. Los Angeles, like most other large cities, faces a host of socio-economic problems in addition to energy delivery. Thus, options or policies which have beneficial side-effects look all the more attractive. The results of the study are indeed encouraging. Energy efficiency and employment creation are not mutually exclusive, since three of the four options considered have the potential to improve both. The most attractive option, on a total jobs basis, was projected to be the mandatory installation of solar water heaters on new homes and retrofit on existing structures at time of resale. On a jobs-per-dollar-spent basis, however, the weatherization package promises to be the best alternative. The types of job openings created are similar for each option and call for a broad range of skill levels. The number of jobs which can be created depends as heavily on the secondary economic stimulus of energy options as it does on direct employment in energy-related jobs. New energy tThe initial bulge may pose capacity problems as well and cause some of the units to be produced elsewhere

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industries or the construction of conventional facilities generate a chain reaction of demands for other industrial goods, while income gains from their production generate additional demands for consumer goods. The Los Angeles economy is able to retain a good deal of these secondary effects because it is technologically advanced, well-integrated and relatively selfsufficient. To the extent that other economies resemble that of Los Angeles, the results should be readily transferable. Of course, the results contained in this paper are not the final word, but only inputs to a decision-making process which must synchronize the capabilities of each energy option with social goals. Since the energy and jobs question is likely to be posed for many years to come, it is hoped that beyond our immediate analysis, the methodology presented here will continue to serve policy-makers on an on-going basis. REFERENCES. 1. W. Leontief, The Structure of fhe American Economy. New York (1941). 2. W. Leontief, Input-Output Economics. New York (1%6). 3. E. Lofting, Los Angeles County Inpuf-Output Table. Engineering-Economics Associates, Berkeley (1980). 4. W. Morrision and P. Smith, I. Reg. Sci. 14, 1 (1974). 5. Solar Energy Research Institute. Communication. Golden, Colorado (June 1980). 6. A. Yates, Residential Retrofit Conservation Study. Los Angeles Mayor’s Office, Los Angeles (Nov. 1980). 7. Los Angeles Department of Water and Power, Power System Resource Plan Summary. Los Angeles (Dec. 1980). 8. Western LNG Associates. Communications. Los Angeles (July 1980). 9. California Energy Commission, “California Energy Demand 1978-2000: A Guide to the Adopted Forecast”. Sacramento, p. 131(July 1980). 10. E. Lofting, Los Angeles County Occupational hfafrk. Engineering Economics Associates, Berkeley (1980). 11. Southern California Chamber of Commerce, Southern California Business Direcfory. Los Angeles (1980). 12. A. Rose, “Economic impact: aggregate and distributional analysis.” In Geothermal Energy and Regional Development (Edited by S. Edmunds and A. Rose). Praeger, New York (1979). 13. A. Rose, D. Kolk, M. Brady and R. Kneisel, The Employment Zmpacf of Energy Opfions on fhe Los Angefes City Economy, final report to the Los Angeles Major’s Energy Office, Pomona, CA (Sept. 1980). 14. State of California, Department of Finance. California Statistical Abstract. Sacramento (1980). 15. California Public Policy Center, Jobs From The Sun: Employment Development in the California Solar Energy Industry.Los Angeles (Feb. 1980). 16. M. Schachter, “Creating Iobs ThroughEnergy Policy”. U.S. Department of Energy, Washington, DC. (July 1979). 17. L. Lerner and F. Posey, The Comparative Eflects of Energy Technologies on Employment. California Energy Commission (Nov. 1979). 18. J. Benson and S. Bauchsbaum, Jobs and Energy. New York Council of Economic Priorities Studies (1979). 19. California Energy Commission. Comparative Eflects of Energy Technologies on Employment. Sacramento (1979). 20. Congress of the U.S. Joint Economic Committee. CreatingJobs ThroughEnergy. Washington, D.C. (1978). 21. K. C. Hoffman and D. W. Jorgenson, “Economic and Technological Models for Evaluation of Energy Policy.” Bell 1. Econ. 8, 2 (1977).