Eco-Labelling and the Labour Market
In this paper I try to analyse the impact of environmental policies in the presence of eco-labelling on the wage level and production levels. For this I start with a general equilibrium framework where a country produces two traded goods using labour and capital, one of which pollutes when consumed. The pollution generated depends on the abatement technology used by the firms and also the scale of production and affects the health of workers and labour productivity. Since the consumers are adversely affected by the pollution generation, they are willing to pay a higher price for a cleaner variety of the dirty good. However, since the pollution is generated during production, they cannot judge the cleanliness of a good. Here the government steps in, monitors the pollution generation and issues an eco-labelling certificate regarding the quality. In this framework, analyse the impact of environmental standards on the wage levels and production. I find that a minimum standard adversely affects the wage rate, unless the productivity effect is very small. However, the eco-labelling process aides the labour market as it tempers the impact of the standard on wages.
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