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 senior fellow at RFF. He studies both environmental policy and tax policy, with a particular focus on interactions between the two.
Common Resources — Dec 21, 2022
RFF’s Top Stories of 2022
As 2022 winds down, the editorial team at Resources for the Future has reviewed the past 12 months of blog posts, magazine articles, and podcast episodes and curated a selection of notable pieces from the year.
On the Issues — Dec 9, 2022
On the Issues: COP27, Clean Energy Transition, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: COP27, clean energy transition, and more.
Resources Radio — Nov 29, 2022
Overcoming Obstacles in the Mid-Transition to Clean Energy, with Emily Grubert
Emily Grubert discusses challenges in the period of the clean energy transition when both fossil fuels and clean energy infrastructure may be needed.