On the labor market consequences of environmental taxes

This paper uses individual-level data to estimate the labor market consequences of environmental policies. The focus on workers rather than industries as the unit of analysis allows me to investigate previously unobserved outcomes, such as (i) unemployment rates, labor force participation rates, and the natures of layoffs and new hires and (ii) the distributional effects of these policies, both of which are critical to understanding costs and their distributions associated with environmental policies. Exploiting the introduction of a revenue-neutral carbon tax in British Columbia (BC), I find that environmental taxes, though revenue-neutral, tax away jobs disproportionately, more likely from less-educated workers. In particular, the policy increases the unemployment rates of medium- and low-educated males by 1.4 and 2.4 percentage points, respectively. The policy is implemented mainly at the expense of the low-educated: because of these job losses, some engage in temporary and part-time jobs, and, eventually, some, being discouraged workers, leave the labor force, with the caveat that the effects could, though unlikely, be partially driven by an unobserved differential shock to BC's labor market.