Employment Dynamics in General Equilibrium (EDGE) Model

RFF's Employment Dynamics in General Equilibrium model is a macro-labor CGE hybrid model. This “Search-CGE” model introduces frictional unemployment and labor market dynamics through a Mortensen and Pissarides (1994) search friction: job creation and job destruction processes determine the rate of unemployment in the economy. The model also allows us to disaggregate total labor demand for each sector into workers and hours per worker. The current iteration of the model includes 22 private industries and a public sector) and solves monthly time steps for up to 20 years into the future.

The purpose of the model is to estimate the impact of carbon policies (or other environmental regulations) on employment in regulated and unregulated industries, and overall unemployment in general equilibrium. Current empirical estimates of job impacts are partial-equilibrium in nature, thus limiting their value when considering economy-wide policies, and CGE models do not explicitly model unemployment (they assume full employment). Further (forthcoming) extensions of the model introduce capital dynamics, cross-sector “job quality”, and within sector job ladders to introduce different levels of job attachment within an industry.