Working Paper: NBER ID: w22269
Authors: Marc A. C. Hafstead; Roberton C. Williams III
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. Thus the policy causes a substantial shift in employment between industries, but 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. The effects on the unregulated industry suggest that empirical studies of environmental regulation that focus only on regulated firms can be misleading (and those that use nonregulated firms as controls for regulated firms will be even more misleading). The paper’s results also suggest that overall effects on employment are not a major issue for environmental policy, and that policymakers who want to minimize sectoral shifts in employment might prefer performance standards over environmental taxes.
Keywords: No keywords provided
JEL Codes: E24; H23; J64; Q52; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pollution tax (Q52) | reduced employment in the polluting sector (Q52) |
| pollution tax (Q52) | increased employment in the nonpolluting sector (Q52) |
| reduced employment in the polluting sector (Q52) | net effect on overall employment (J63) |
| increased employment in the nonpolluting sector (Q52) | net effect on overall employment (J63) |
| performance standards (J80) | smaller sectoral shift in employment (J29) |
| pollution tax (Q52) | larger sectoral shift in employment (J29) |
| empirical studies on regulated firms (K23) | overstate the net effect of environmental regulation on employment (J48) |
| carbon policy interaction with job matching process (J68) | economy-wide employment impacts (F69) |