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Climate Policy and Labor Markets

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  • Olivier Deschenes
Abstract
An important component of the debate surrounding climate legislation in the United States is its potential impact on labor markets. Theoretically the connection is ambiguous and depends on the sign of cross-elasticity of labor demand with respect to energy prices, which is a priori unknown. This paper provides some new evidence on this question by estimating the relationship between real electricity prices and indicators of labor market activity using data for 1976-2007. A key contribution of this analysis is that it relies on within-state variation in electricity prices to identify the models and considers all sectors of the U.S. economy rather than focusing only on the manufacturing sector. The main finding is that employment rates are weakly related to electricity prices with implied cross elasticity of full-time equivalent (FTE) employment with respect to electricity prices ranging from -0.16% to -0.10%. I conclude by interpreting these empirical estimates in the context of increases in electricity prices consistent with H.R. 2454, the American Clean Energy and Security Act of 2009. The preferred estimates in this paper suggest that in the short-run, an increase in electricity price of 4% would lead to a reduction in aggregate FTE employment of about 460,000 or 0.6%.

Suggested Citation

  • Olivier Deschenes, 2010. "Climate Policy and Labor Markets," NBER Working Papers 16111, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16111
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    References listed on IDEAS

    as
    1. Michael Greenstone, 2002. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1175-1219, December.
    Full references (including those not matched with items on IDEAS)

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    1. Energy taxes and employment
      by Economic Logician in Economic Logic on 2010-07-28 20:43:00

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    Cited by:

    1. Antoine Dechezleprêtre & Misato Sato, 2017. "The Impacts of Environmental Regulations on Competitiveness," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 183-206.
    2. Sato, Misato & Singer, Gregor & Dussaux, Damien & Lovo, Stefania, 2019. "International and sectoral variation in industrial energy prices 1995–2015," Energy Economics, Elsevier, vol. 78(C), pages 235-258.
    3. Shawhan, Daniel & Picciano, Paul, 2018. "Retirements and Funerals: The Emission, Mortality, and Coal-Mine Employment Effects of a Two-Year Delay in Coal and Nuclear Power Plant Retirements," RFF Working Paper Series 18-18, Resources for the Future.
    4. Tanaka, Shinsuke, 2015. "Environmental regulations on air pollution in China and their impact on infant mortality," Journal of Health Economics, Elsevier, vol. 42(C), pages 90-103.
    5. Bretschger, Lucas & Jo, Ara, 2024. "Complementarity between labor and energy: A firm-level analysis," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    6. Xin Liu & Zhiyong Kang, 2023. "Environmental Regulation and Employment Changes in Chinese Manufacturing Enterprises: Micro Evidence from the Top 10,000 Energy-Consuming Enterprises Program," Sustainability, MDPI, vol. 15(18), pages 1-21, September.
    7. Matthew E. Kahn & Erin T. Mansur, 2010. "How Do Energy Prices, and Labor and Environmental Regulations Affect Local Manufacturing Employment Dynamics? A Regression Discontinuity Approach," NBER Working Papers 16538, National Bureau of Economic Research, Inc.
    8. Don Fullerton, 2011. "Six Distributional Effects of Environmental Policy," Risk Analysis, John Wiley & Sons, vol. 31(6), pages 923-929, June.
    9. Cox, Michael & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2014. "Labor demand effects of rising electricity prices: Evidence for Germany," Energy Policy, Elsevier, vol. 75(C), pages 266-277.
    10. E. Mark Curtis, 2014. "Who Loses Under Power Plant Cap-and-Trade Programs?," NBER Working Papers 20808, National Bureau of Economic Research, Inc.
    11. Zhu, Junming & Ruth, Matthias, 2015. "Relocation or reallocation: Impacts of differentiated energy saving regulation on manufacturing industries in China," Ecological Economics, Elsevier, vol. 110(C), pages 119-133.

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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