I live in Germany and as most people know the car industry is very important in our country. Currently, there is a discussion about stricter emission limits for cars in the European Union. The car industries main criticism of stricter limits is that they supposedly lead to lots of jobs being lost. I don't quite understand why this should be the case.

Why do (don't) stricter emission limits lead to job loss? What theoretical mechanism is at work here? Is there any empirical evidence that this is actually the case (stricter limits lead to job loss)?



I am not knowledgeable of the mechanism and exact details of the emissions paraphernalia, but the sector's worry makes perfect sense. Stricter regulations lead to or contribute to job losses.

Stricter emission regulation entails a greater probability and/or magnitude of fines and sanctions to non-compliant companies. To avoid those sanctions, a company will be forced to spend additional resources to (1) replace technologies that are otherwise perfectly operational, (2) focus on expertise that distracts that industry from its core business, and (3) fund expenses that result from the increased overhead. The question is where those resources will come from.

Car makers may opt to pass that cost to consumers. However, that decision predictably will push sales down, thereby leading to overcapacity of labor and consequently layoffs.

Alternatively, car makers may decide to absorb the new compliance costs and leave the price of cars unchanged. But the prospect of reduced profits would prompt stockholders to sell their stock, thereby weakening the car maker's ability to meet its financial obligations. To cope with (or avoid exacerbating) this imbalance, the car maker has to reduce costs; and the readily available alternatives to that effect are layoffs and a freeze of new hires.

Furthermore, for car makers with significant reliance on exports, compliance with stricter regulations tends to hinder their competitiveness especially with respect to non-EU car makers which are not subject to akin regulatory constraints. Thus, EU car makers will lose [international] market share, most likely impacting its ability and interest to keep that much of its labor force.

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    $\begingroup$ If car makers pass the costs of compliance with emissions regulation on to consumers and car sales fall as a consequence, isn't it likely that the consumers who might otherwise have bought a car will spend their money on other goods, leading to an offsetting increase in jobs in other sectors? $\endgroup$ – Adam Bailey Nov 14 '18 at 22:13
  • $\begingroup$ @AdamBailey At most, that could be true only in a closed economy (which Germany is not). In all likelihood, a portion of consumers' "spare" money will benefit foreign markets. Even if all that "spare" money were spent in the domestic economy and create jobs in Germany, car makers are right in that the sector itself would experience a contraction that will be reflected in its demand of labor. $\endgroup$ – Iñaki Viggers Nov 14 '18 at 23:09
  • $\begingroup$ Agreed, I meant partial, not complete, offsetting of job losses. The point I am making is that focusing on job losses in one sector most directly affected by regulation often does not give the full picture, ie the net effect on total employment. $\endgroup$ – Adam Bailey Nov 15 '18 at 10:28
  • $\begingroup$ @AdamBailey Looking at the full picture, the assumption that consumers will spend their money on other goods might be too optimistic. Seeing auto workers lose their jobs (with its foreseeable domino effect on related industries and local business) could deter people from spending more than indispensable for fear that they themselves might need their savings later on. Governments should avoid over-regulation because it inevitably strangles the economy, instills fear/worry, and kills initiative. $\endgroup$ – Iñaki Viggers Nov 15 '18 at 12:06
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    $\begingroup$ @IñakiViggers what governments "should" do is a normative position. That being said there may be good reasons why governments impose emission limits. Health benefits for example. Whether those outweigh losses from jobs and car sales, who knows. And of course we could use taxes or cap and trade for that but those have downsides as well. $\endgroup$ – Maarten Punt Nov 15 '18 at 18:48


I don’t understand this either. The management function of the car industry in Germany is under a responsibility to maximise profits within the law. They aren’t responsible to maximise the number of jobs. This looks like a political or marketing claim being made in the context of the capitalists of an industry sector bargaining with the state.

In such a context assuming that the market facing marketing unit of the car industry as a whole is honestly representing an economic process is dubious. I suspect the marketing purpose relates to the economic costs of labour and production process disruptions to legally comply with potential regulations on their commodity. Namely that the law would reduce profits is the motivator, and that job losses are virtue signalling to conceal the nature of the firm from the public / state representatives. There’s also an element of threat.

I am sure that other answers will explore the possibility that this claim is independently potentially truthful, but within a framework where emissions are limited by the state, but where profit taking by car companies is not limited. The car industry’s statement definitely is in the context of firms engaging in political action for economic ends, even though the bargaining is in a very imperfect “market” with poorly informed agents.


The arguments of the automotive industry are rather vague and should not be reckoned to be sophisticated at all. The VDA (German Association of the Automotive Industry) claims that the planned regulations are technically not realisable within the next years - especially for trucks and commercial vehicles. Once these type of cars are banned from the streets due to them not meeting the regulations, the customer has to look for an adequate alternative - which hardly exists and costs a lot. Hence whole sectors like logistic or retail have to struggle, since there is no suitable alternative to polluting trucks, and employees have to be laid off, since without automobiles moving services and goods there is a gap in logistic chain and there goes the economy...

However, the regulations will cost jobs in the German automative industry, since there are simply not enough cheap German electrally powered cars. People would be incentivised to buy more cars from abroad or - the worst case scenario - too look for a alternative to automobiles. The drop in German car sales in Germany would ultimatively lead to some layoffs.

The argument of job losses is more a threat than a profound prediction. "Dare to adopt these regulations and we will lay off a significant amount of workers."


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