1887

OECD Environment Working Papers

This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.

English

Employment Impacts of Climate Change Mitigation Policies in OECD

A General-Equilibrium Perspective

Using a computable general equilibrium, this paper quantifies the GDP and employment effects of an illustrative greenhouse gas emissions reduction policy. The paper first analyses the direct negative economic effects of the emissions restrictions on GDP and examines labour sectoral reallocations in a framework where labour markets are perfectly flexible. The model is then modified to incorporate labour market imperfections in OECD countries that could generate unemployment, namely, short-run rigidities in real wage adjustment. It is shown that imperfect wage adjustment increases the cost of mitigation policy since unemployment increases in the short-run, but that the carbon tax revenue generated can be recycled so as offset some or all of this effect, notably when it is used to reduce wage-taxes. Thus, taking realistic labour market imperfections into account in a CGE model affects the GDP costs of mitigation policy in two ways: first by introducing extra costs due to the increased unemployment that such policy may entail; second by creating the possibility of a double dividend effect when carbon taxes are recycled so as to reduce distorting taxes on labour income..

English

Keywords: climate change mitigation policy, unemployment, CGE model, carbon pricing
JEL: Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming; D58: Microeconomics / General Equilibrium and Disequilibrium / Computable and Other Applied General Equilibrium Models; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; E24: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
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