Labor Reallocation and the Regional Greenhouse Gas Initiative

Abstract

Policies intended to reduce the amount of greenhouse gas emissions are among the most hotly debated policy problems of our time. Among the concerns raised are that costs will be passed on to consumers and jobs will be lost. A vast economic literature has addressed the pricing of carbon dioxide, at least theoretically, but empirical evidence and observed market behavior following carbon legislation is scant due to the lack of policy implementation. We use the introduction and eventual tightening of the Regional Greenhouse Gas Initiative (RGGI), a regional carbon permit system in the Northeastern United States, to measure labor market responses and dynamics following the implementation of a carbon pricing system. We find that implementation of the RGGI and the subsequent tightening of the emissions cap has had no effect on employment or earnings in the utilities sector but increased the rate at which workers flow in and out of jobs. In particular, within the utilities sector, we observe some job destruction and worker separation combined with increased labor reallocation across establishments. This is complemented with small spillover effects yielding positive increases in hiring, worker reallocation and job creation in industries outside of utilities. Furthermore, when we account for the endogeneity of electricity prices we find increased hiring, job creation and worker reallocation rates and a decline in job destruction rates
across industries.

Keywords: Carbon Emissions, Climate Policy, Labor Market Dynamics

JEL Classification: J23, J68, L94, Q38, Q48