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Unemployment and environmental regulation in general equilibrium

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  • Hafstead, Marc A.C.
  • Williams, Roberton C.

Abstract

This paper analyzes the effects of environmental policy on employment (and unemployment) using a new general-equilibrium two-sector search model. We find that imposing a pollution tax causes substantial reductions in employment in the regulated (polluting) industry, but this is offset by increased employment in the unregulated (nonpolluting) sector. As a result, while the policy causes a substantial shift in employment between industries, the net effect on overall employment (and unemployment) is small, even in the short run. An environmental performance standard causes a substantially smaller sectoral shift in employment than the emissions tax, with roughly similar net effects. Thus, policymakers who want to minimize sectoral shifts in employment might prefer performance standards over environmental taxes.

Suggested Citation

  • Hafstead, Marc A.C. & Williams, Roberton C., 2018. "Unemployment and environmental regulation in general equilibrium," Journal of Public Economics, Elsevier, vol. 160(C), pages 50-65.
    • Handle: RePEc:eee:pubeco:v:160:y:2018:i:c:p:50-65
    DOI: 10.1016/j.jpubeco.2018.01.013
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    More about this item

    Keywords

    Unemployment; Environmental regulation; Emissions pricing; Climate; Environmental tax; Intensity standard;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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