Environmental taxes, unemployment and the determinants of labour mobility
Diane Aubert (Université Paris Est Créteil, ERUDITE)
What is the magnitude of the labour shift between the polluting and non-polluting sectors induced by an environmental policy? We build a general equilibrium model with two-regions/two-sectors, imperfect labour markets, pollution externalities and non-homothetic preferences on polluting consumption. Our theoretical analysis shows that departing from standard hypothesis on utility and production functions (neutrality of risk, homothecy, constant elasticity of substitution) are crucial to understand the determinants of labour mobility induced by environmental policies. Indeed, the introduction of frictions in the labour market results in employment costs that are exacerbated by environmental taxes under these assumptions. Wages subsidies and transfers among sectors are explored as solutions to remove distortions.