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.
Resources Radio — Jan 25, 2022
California Crude: Seeking a Just Transition in the Golden State, with Kyle Meng
Kyle Meng explores California’s oil and gas industry and how new policies can be designed to minimize emissions while supporting impacted communities.
Common Resources — Jan 21, 2022
Is There a Trade-off Between Equity and Effectiveness for Electric Vehicle Subsidies?
A new analysis from Resources for the Future shows that subsidies for electric vehicles are more equitable when aimed at lower incomes. Though all the subsidies here tend to benefit lower-income households, the income-based subsidy is most progressive.