Effectiveness and Distributional Impacts of Conservation Policies: The Role of Labor Markets

Conservation policies are critical for sustainable management of natural resources. Ray et al. (2023) argues that rigidities in labor markets dampens the impact of conservation policies, in terms of changes in employment and production while also ignoring endogenous change in wages. In this paper, we find that the interaction between conservation policies and labor markets are more complex. We develop a stylized two-input framework that identifies key parameters that determine the effectiveness (in terms of resources conserved) and distributional effects of a conservation policy (amongst consumers, resource owners and farmworkers) depending on the representation of labor markets. The empirical application of the theoretical model is motivated by the dual challenges of increasing scarcity in agricultural workers and over-exploitation of groundwater for irrigated crop production in the Western US. We use the SIMPLE-G-CZ (Simplified International Model of agricultural Prices, Land use, and the Environment, Gridded with Commuting Zones), which is a partial equilibrium model for agricultural production with spatially explicit labor markets. The SIMPLE framework uses data from multiple sources to incorporate the heterogeneity in biophysical conditions that underlie producer behavior with high spatial granularity. Our analysis shows that a key analytical relationship (i.e., Condition C1), can identify the subset of grid-cells where ignoring labor markets would over-estimate effectiveness and under-estimate adverse distributional impacts of a conservation policy. Restrictions on labor mobility, limits spatial spillover effects, that can facilitate relocation of production away from resource-scarce regions to alleviate stress on over-exploited resources. Conservation policies are expected to increase resource rental rates, reflecting the scarcity in resources. However, lack of alternative employment opportunities within a labor shed can lead to job losses and lower wages, especially in rural communities heavily reliant on the agricultural sector, aggravating distributional concerns.