Unemployment and Environmental Regulation in General Equilibrium

No 22269, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the effects of environmental policy on employment (and unemployment) using a new general-equilibrium two-sector search model. We find that imposing a pollution tax causes substantial reductions in employment in the regulated (polluting) industry, but this is offset by increased employment in the unregulated (nonpolluting) sector. Thus the policy causes a substantial shift in employment between industries, but the net effect on overall employment (and unemployment) is small, even in the short run. An environmental performance standard causes a substantially smaller sectoral shift in employment than the emissions tax, with roughly similar net effects. The effects on the unregulated industry suggest that empirical studies of environmental regulation that focus only on regulated firms can be misleading (and those that use nonregulated firms as controls for regulated firms will be even more misleading). The paper’s results also suggest that overall effects on employment are not a major issue for environmental policy, and that policymakers who want to minimize sectoral shifts in employment might prefer performance standards over environmental taxes.

JEL-codes: E24 H23 J64 Q52 Q58 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-env, nep-lab, nep-mac and nep-reg
Note: EEE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Marc A.C. Hafstead & Roberton C. Williams, 2018. "Unemployment and environmental regulation in general equilibrium," Journal of Public Economics, vol 160 (April), pages 50-65.

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Journal Article: Unemployment and environmental regulation in general equilibrium (2018)
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