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Climate Policy and Labor Markets

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  • Olivier Deschenes

Abstract

An important component of the debate surrounding climate legislation in the United States is its potential impact on labor markets. Theoretically the connection is ambiguous and depends on the sign of cross-elasticity of labor demand with respect to energy prices, which is a priori unknown. This paper provides some new evidence on this question by estimating the relationship between real electricity prices and indicators of labor market activity using data for 1976-2007. A key contribution of this analysis is that it relies on within-state variation in electricity prices to identify the models and considers all sectors of the U.S. economy rather than focusing only on the manufacturing sector. The main finding is that employment rates are weakly related to electricity prices with implied cross elasticity of full-time equivalent (FTE) employment with respect to electricity prices ranging from -0.16% to -0.10%. I conclude by interpreting these empirical estimates in the context of increases in electricity prices consistent with H.R. 2454, the American Clean Energy and Security Act of 2009. The preferred estimates in this paper suggest that in the short-run, an increase in electricity price of 4% would lead to a reduction in aggregate FTE employment of about 460,000 or 0.6%.

Suggested Citation

  • Olivier Deschenes, 2010. "Climate Policy and Labor Markets," NBER Working Papers 16111, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16111
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    1. Energy taxes and employment
      by Economic Logician in Economic Logic on 2010-07-28 20:43:00

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    Cited by:

    1. Cox, Michael & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2014. "Labor demand effects of rising electricity prices: Evidence for Germany," Energy Policy, Elsevier, vol. 75(C), pages 266-277.
    2. Don Fullerton, 2010. "Six Distributional Effects of Environmental Policy," CESifo Working Paper Series 3299, CESifo Group Munich.
    3. Zhu, Junming & Ruth, Matthias, 2015. "Relocation or reallocation: Impacts of differentiated energy saving regulation on manufacturing industries in China," Ecological Economics, Elsevier, vol. 110(C), pages 119-133.
    4. Matthew E. Kahn & Erin T. Mansur, 2010. "How Do Energy Prices, and Labor and Environmental Regulations Affect Local Manufacturing Employment Dynamics? A Regression Discontinuity Approach," NBER Working Papers 16538, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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