Economist Garth Heutel moves the needle forward on a critical environmental policy question
ATLANTA—Do government regulations designed to counter the climate crisis kill jobs? In his search for an accurate answer, Georgia State University environmental economist Garth Heutel has used a decades-old economic model in a new way, and his findings bear promise.
“Environmentalists have studied this relationship a long time,” he said. “We’re the first to apply the efficiency wage model to environmental policy to look at how it affects jobs and unemployment.”
In “Efficiency Wages, Unemployment and Environmental Policy,” Heutel and his co-author, Georgia State Ph.D. candidate Xin Zhang, use an analytical general equilibrium model with unemployment generated through efficiency wages to analyze the effect of a pollution tax on unemployment and on the distribution of the burden of the tax.
“Different models can show different effects,” Heutel said. “The efficiency wage models show there’s something not captured in the supply and demand models of the labor market that have been used to determine the impact of environmental policies.”
Heutel’s key theoretical finding is that when workers are more responsive to real wage, the efficiency wage effect is larger, and when workers are more responsive to unemployment, the efficiency wage effect is smaller.
“In other words, under this model, we know there will be some effect on the labor market, but we don’t know the direction it will go,” he said. “This effect depends on the specification of the model. If we knew what specification of unemployment best captures the labor market, that would tell us how environmental policy can affect unemployment.
“This research shows the real world is more complicated than previous models suggest. We need to have a better understanding of labor markets and which of these efficiency wage models is more accurate. More work needs to be done.”
However, the results of this study provide theoretical insights into the impact of environmental policy on labor markets that could inform policymakers, the authors conclude.
“The effect of policy on unemployment depends on how unemployment is generated in the economy. We show that how that effort responds is a crucial determinant of how overall unemployment will be affected by a pollution tax, as well as its incidence.”
Garth Heutel is an Associate Professor of Economics in the Andrew Young School of Policy Studies at Georgia State University and a Research Associate at the National Bureau of Economic Research. He studies energy and environmental policy, behavioral economics, public economics, and the economics of nonprofit organizations. His research has been published in the American Economic Review, Review of Economics and Statistics, Journal of Public Economics, The Economic Journal, Journal of Environmental Economics and Management, and elsewhere. He earned his PhD at the University of Texas at Austin, and he was previously a faculty member at the University of North Carolina at Greensboro and a postdoctoral research fellow at Harvard University.