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We develop a computable general equilibrium model of the United States economy to study the unemployment effects of climate policy and the importance of cross-industry labor mobility. We consider two alternate extreme assumptions about labor mobility: either perfect mobility, as is assumed in much previous work, or perfect immobility. The effect of a $35 per ton carbon tax on aggregate unemployment is small and similar across the two labor mobility assumptions (0.2-0.4 percentage points). The effect on unemployment in fossil fuel sectors is much larger under the immobility assumption - a 24 percentage-point increase in the coal sector - suggesting that models omitting labor mobility frictions may greatly under-predict sectoral unemployment effects. Returning carbon tax revenue through labor tax cuts can dampen or even reverse negative impacts on unemployment, while command-and-control policies yield less efficient outcomes.

Zonder onderwerpscode: economie

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We develop a computable general equilibrium model of the United States economy to study the unemployment effects of climate policy and the importance of cross-industry labor mobility. We consider two alternate extreme assumptions about labor mobility: either perfect mobility, as is assumed in much previous work, or perfect immobility. The effect of a $35 per ton carbon tax on aggregate unemployment is small and similar across the two labor mobility assumptions (0.2-0.4 percentage points). The effect on unemployment in fossil fuel sectors is much larger under the immobility assumption - a 24 percentage-point increase in the coal sector - suggesting that models omitting labor mobility frictions may greatly under-predict sectoral unemployment effects. Returning carbon tax revenue through labor tax cuts can dampen or even reverse negative impacts on unemployment, while command-and-control policies yield less efficient outcomes.