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Labor Market Distortions and Welfare-Decreasing International Emissions Trading

Author

Listed:
  • Shiro Takeda

    (Kyoto Sangyo University)

  • Toshi H. Arimura

    (Waseda University)

  • Makoto Sugino

    (Yamagata University)

Abstract

Using a multi-region, multi-sector computable general equilibrium model, this paper analyzes the effects of international emissions trading (IET) with a focus on labor market distortions. We construct four separate models with several different labor market specifications: (1) a model without labor market distortions; (2) a model with taxinteraction effects in the labor market; (3) a model with a minimum wage; and (4) a model in which a wage curve determines wages. We use these models to analyze how the effects of IET change according to model specification. The main results from the analysis are as follows. First, we found that IET generates gains for all participants in the model without labor market distortions. Second, even in the models with labor market distortions, importers of emissions permits are highly likely to benefit. Conversely, we show that the possibility of a welfare loss from IET is not as small for exporters of permits. In particular, in the minimum wage and wage curve models, we found that the exporters of emissions permits are likely to be disadvantaged. However, this also depends on the region in question. For example, China is likely to suffer under IET, whereas Russia is likely to benefit. Finally, if we implement policies to alleviate labor market distortion simultaneously with emissions regulation, all regions receive benefit from IET.

Suggested Citation

  • Shiro Takeda & Toshi H. Arimura & Makoto Sugino, 2019. "Labor Market Distortions and Welfare-Decreasing International Emissions Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 271-293, September.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:1:d:10.1007_s10640-018-00317-4
    DOI: 10.1007/s10640-018-00317-4
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    2. Dianshuang Wang & Xiaochun Li & Zixin Hu & Run Yuan, 2023. "Labor market distortion and its impact on wage inequality in the modernization of small‐scale agriculture," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 988-1007, December.
    3. Chuangxin Zhao & Manping Tang, 2022. "Research on the Influence of Labor Contract on the Urban Integration of Migrant Workers: Empirical Analysis Based on China’s Micro Data," IJERPH, MDPI, vol. 19(18), pages 1-19, September.
    4. Shiro Takeda & Toshi H. Arimura & Makoto Sugino, 2019. "Labor Market Distortions and Welfare-Decreasing International Emissions Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 271-293, September.

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