Sixteenth International Conference on Environmental, Cultural, Economic & Social Sustainability

Abstract

This paper develops a two-sector search model with sectoral human capital accumulation to explore the effects on the labor market of implementing a per unit of energy use carbon tax in the US. In particular, I examine costly reallocation of workers between sectors, the welfare effects of involuntary unemployment, and the heterogeneous effects of this policy on different types of workers. I separate the economy in a high-intensive sector and a low-intensive sector. I discipline the model parameters using 2014 U.S. data. I find that a carbon tax increases total unemployment by 3 percentage points, dirty employment rate decreases by 1.1 percentage points, and clean employment rate increases by half a percentage point. Also, I find that firms in the dirty sector adjust by decreasing the demand of high-skilled workers. Increasing the number of vacancies in the low-skilled market, where the production demands less energy and workers perceive lower wages.