This article explores the critical role of labour market imperfections in climate stabilization cost formation, using a dynamic recursive energy economy model that represents a second-best world with market imperfections and short-run adjustment constraints along a long-term growth path. The degree of rigidity of the labour markets is a central parameter, and a systematic sensitivity analysis of the model results confirms this. When labour markets are represented as highly flexible, the model results are in the usual range of the existing literature; that is, less than 2% GDP losses in 2030 for a stabilization target at 550 ppm CO(2) equivalent. However, when labour market rigidities are accounted for, mitigation costs increase dramatically. Accompanying measures are identified, namely labour subsidies, which guarantee against the risk of large stabilization costs in the case of high rigidities of the labour markets. This complements the usual view that mitigation is a long-term matter that depends on technology, innovation, investment and behavioural change. The results support the view that mitigation is also a shorter-term issue and a matter of transition with regard to the labour market.
- EQUILIBRIUM UNEMPLOYMENT
- DOUBLE DIVIDEND
- WAGE CURVE
[Guivarch, Celine; Crassous, Renaud; Sassi, Olivier; Hallegatte, Stephane] CIRED, F-94736 Nogent Sur Marne, France; [Hallegatte, Stephane] Ecole Natl Meteorol, Toulouse, France
Guivarch, C (reprint author), CIRED, 45bis Ave Belle Gabrielle, F-94736 Nogent Sur Marne, France.
- Centre international de recherche sur l'environnement et le développement (CIRED), UMR8568