Environmental Policy, Full-Employment Models, and Employment: A Critical Analysis
This article in JAERE assesses the use of full-employment computable-general equilibrium (CGE) models to evaluate labor-market effects of environmental policy.
This paper assesses the use of full-employment computable-general equilibrium (CGE) models to evaluate labor-market effects of environmental policy. Specifically, it compares a full-employment model to two alternatives: a Balistreri model that introduces unemployment through an endogenous wage premium and a search-CGE model that uses a search-and-matching friction to introduce unemployment (extending Hafstead and Williams). We find that some key results are robust across the three models, such as the reallocation of labor across sectors in response to a carbon tax, but that small differences for each industry add up to larger differences across models at the aggregate level. Applying a full-time-equivalent assumption to the full-employment model seriously overestimates the economy-wide net change in jobs (by a factor of more than 2.4 for a carbon tax with revenues returned lump sum and by a factor of almost 2.7 when carbon tax revenue reduces payroll taxes) relative to the search-CGE model.
Roberton C. Williams III
Rob Williams is a university fellow at RFF. He studies both environmental policy and tax policy, with a particular focus on interactions between the two.
Media Highlight — Jun 15, 2022
Quartz: "Sky-High Oil Prices Are a Unique Chance to Pay for Climate Action"
RFF Fellow Daniel Raimi Raimi is quoted in this piece, which is based around his recent blog post on how states can sustainably invest revenue from high fossil fuel taxes.
Common Resources — Jun 8, 2022
Now’s the Time: How States Can Take Advantage of High Energy Prices
Prices of coal, oil, and natural gas are spiking. Although high energy costs hurt consumers, the situation offers an opportunity for energy-producing states to invest windfall tax revenues and make communities more economically resilient in the long term.
On the Issues — Jun 3, 2022
On the Issues: Energy Transition in Poland, International Climate Disclosures, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: energy transition in Poland, international climate disclosures, and more.