| The inordinate economic growth rate of China over the previous 30 years has a phased feature,which might result from variations between the five-year plans that are implemented by the Chinese government every five years since the early 1950s.While most of the earlier plans mainly contain economic development guidelines,the 12th Five-Year Plan,comprising the years 2011 to 2015,devotes unprecedented attention to environmental regulations promulgated in response to increased environmental pressures.Currently,how to balance the relationship between economic development and environmental protection has become a key problem for China in order to achieve stable development.Both policy makers and environmental economists believe that vigorously developing a green economy with efficiency,harmony and sustainability is a necessary measure to solve this contradiction.Under the backdrop of green economy development,the implementations of the different kinds of environmental regulations have been becoming more and more frequently.Although the ultimate aim of adopting these environmental regulations is to achieve sustainable growth,their immediate effects on the economy,especially on aggregate unemployment,are in question.From the previous literature,no conclusive answer has been given to the question on whether or not stringent environmental regulations cause a severe loss of jobs,a moderate loss of jobs,or,a more baffling case,a gain of jobs in general.In fact,few papers,if any,have provided theoretical support on the ambiguous sign of the unemployment response to a more stringent environmental policy and analyze the factors that may shape the role of environmental regulations in unemployment.Therefore,it is critical and fundamental to examine the impacts of the environmental regulations on the aggregate unemployment and labor relocation based on in-depth research,under the overall trend of green economy development.Therefore,we have laid special emphasis on the following concerns.First,we concern whether environmental regulations would endanger aggregate employment and then threaten the already fragile livelihood issues,and whether the unemployment contradiction caused by environmental regulations would become a major obstacle to the pursuit of the harmonious and sustainable development under the overall trend of green economy.Second,in the study of the impact of environmental regulations on overall employment,it easier for us to capture the direct effect on employment of regulated departments.But it is also easy to ignore the bias caused by indirect effects caused by other indirect conduction mechanisms.We need to clarify these mechanisms and relative strength of various effects theoretically,which can help us understand the general-equilibrium employment effect of environmental regulations more clearly.In fact,since the 1970s,when the developed countries have implemented strict environmental regulation policies,the studies in employment effect of environmental regulation have been widely concerned by academia especially in the developed countries.Recently,a lot of studies exploring the interaction between environmental regulations and employment in China also enable us to understand the impacts of some important factors of the environmental policies on the labor market in the developing countries,and provide valuable experience for further research.However,these studies for the developed countries and for China mainly used the econometric empirical methods,and few provided theoretical framework to analyze this issue.For the econometric empirical methods,it is difficult to find quantitative data for more complicated variables.And there are complex and cause-and-effect relationships between these complicated variables.The transfer channel and mechanism of environmental regulation to employment may be restricted by multiple variables.Also,it is difficult for us to make a more accurate prediction of the employment impact of a newly-implemented environmental regulation.Therefore,this thesis attempts to solve this complex problem by using the analytical framework of general equilibrium model with search frictions,and systematically analyzes the mechanism and intensity of various effects behind.The goal of our model is to understand how environmental regulations affect both regulated and unregulated sectors through a general-equilibrium analysis.We introduce a two-sector general equilibrium model with much richer micro structure.To exemplify this,we have two production sectors in this model.The two sectors are called dirty sector and clean sector,respectively.In the dirty sector,production generates pollution,while in the clean sector,production does not pollute environment.Only a proportion of firms are enforced by the policies.The dirty products and the clean products are imperfect substitutes for the agents.They are parts of the composite consumption goods,which is derived from a constant elasticity of substitution(CES)aggregation function.We assume that in this general equilibrium model each sector has a labor market,and workers can move across the two sectoral labor markets.At the beginning of each period,firms of the two production sectors post vacancies in their own labor market,and the unemployed worker can choose to go to which labor market for finding a job.Once the unemployed worker makes the choice,she or he cannot move across the markets at the current period.Then,there are two temporary separable labor markets.In these two labor markets,wage rates can be different.Unemployment is endogenously generated due to a Diamond-Mortensen-Pissarides type of search friction within each production sector.We calibrate the model to Chinese data and then we simulate the model.We find that an increase in the stringency of environmental regulations comparable to that of the 12th Five-Year Plan in China would lead to an increase in the aggregate unemployment rate.If the performance standard parameter declines by 40%to match the data for the Chinese economy during the 12th Five-Year Period,then the aggregate unemployment rate increases from 10.95%to 14.32%.The unemployment rate in the dirty sector increases by 1.77%and the unemployment rate in the clean sector increases by 1.59%.This finding sorts out ambiguities of the effect on aggregate unemployment.We summarize that the policy shock affects unemployment through two channels:the extrusion channel and the absorption channel.From the dynamic effect on the unemployment,we find that the unemployment rate has increased as the stringency of the environmental policy has increased during the examined period in China in the long run while it has declined in the middle run,showing an inverted-V shape.The dynamic path reveals that the sign of total effect of environmental regulations on unemployment being positive or negative is determined by the battle between the extrusion effect and the absorption effect.Then,we examine how parameters related to the disutility from work and average working hours,income tax,bargaining power,search cost function,separation rate,and productivity in the production function of the clean sector affect quantitative results.This exercise will help to understand how to apply the current model to analyze other economies with environmental issues.However,the variations of these parameters change only the magnitude of the quantitative results,but they do not change their general direction.Finally,we change the targets of the relative size the dirty and clean sectors and the unemployment benefit replacement ratio to analyze how labor allocation across the two sectors and aggregate unemployment respond to different specifications of these two targets.We find that the change direction of the main variables keeps unchanged and consistent if we change the relative size of these two sectors.However,if the relative size of the dirty sector is larger,the policy-induced negative impact on the unemployment is larger.The variation of the unemployment benefit replacement ratio changes only the magnitude of the quantitative results,but it does not change their general direction.Then,we extend the model by considering the new labor demand of the abatement activity due to a stringent environmental regulation.In detail,we enrich the general equilibrium version by allowing the firms in the dirty sector to have abatement technology choices to sort out the internal mechanism of impacts on the unemployment and employment more clearly and comprehensively.The main settings are the same as the previous two-sector general equilibrium model.The difference is that in this model we assume that in the dirty sector,there are two kinds of labor,i.e.,the workers producing the dirty products and the workers using an abatement technology.However,in the clean sector,there is only one kind of labor input.The advantage of this version of model is that it enables us to understand the change in the changes in decision of firms in the dirty sector on allocation the numbers of workers to produce products and the numbers of workers to use abatement technology due to stringent environmental regulations.Therefore,to examine each specific effect of environmental regulations on the unemployment in detailed,we divide the total impact of environmental regulations on employment and unemployment into four effects,including scale effect,substitution effect,creation effect and transition effect.We find that the scale effect is negative,and other three effects are positive.With the increasingly stringent environmental regulations,all of the four effects are amplified.The increase in the employment of the clean sector is convinced evidence to prove that the absorption effect in the clean sector and the extrusion effect in the dirty sector.From the results in the sensitivity test,we find that the transition effect becomes negative when the income tax is much higher.The negative change in the employment of the clean sector is similar with the results shown in the previous model.The absorption effect might happen in the process of the adjustment in the labor market,but it is dominated by the extrusion effect,showing a final negative effect on each sector.It proves that the possibility of the decline in the employments in the both dirty and clean sector.If there is an extreme case that average working hour is zero,then the policy shock leads to a decrease in unemployment.The finding verifies that the case of policy-induced unemployment effect being positive exits.Although we have analyzed the positive partial effect,we want to show a simple case that the environmental regulation would induce a positive general equilibrium on the aggregate unemployment.Therefore,we establish a simple two-sector model with search frictions and pollution discharges to study the impact of environmental regulations on labor relocation and aggregate unemployment.The advantage of this model is that it is a tractable search-and-matching model,which enable us to deploy a stationary equilibrium to investigate the impact of a change in the environmental policy shock on the changes in the labor market,so as to understand the channels through which the policy works on the relocation of workers and the aggregate unemployment rate.We abandon some of the settings about households and government,making this version of model more partial general equilibrated.We find that a stringent environmental policy generates two opposite effects on the unemployment rate.On one side,a stringent environmental policy moves the Production Possibility Frontier inward,discouraging firms to post vacancies,and leading to lower job finding rates and a higher unemployment rate.On the other side,a stringent environmental policy lowers the marginal productivity of workers in the dirty sector and,therefore,their wages,making the dirty sector less attractive to workers and leading them to move to the clean sector.The resulting move of unemployed workers from the dirty to the clean sector drags down the unemployment rate.The negative effect is defined as the scale effect or extrusion effect and the positive effect is defined as the general equilibrium effect or absorption effect.The change in unemployment,however,is ambiguous,since the sign of the unemployment responses is determined by a battle between a negative scale effect and a positive general equilibrium effect.This theoretic analysis has strongly explained that why we can find different conclusions of the empirical studies.Quantitatively,we find that if we adjust the stringency of the regulations in our quantitative model to match the fact that the average pollution per output declines by 40%during this period,then the unemployment rate goes down from 10.9%to 10.6%.Part of the reason for this result is that our simplified model ignores the search friction in the labor market of the clean sector.However,this natural experiment provides evidence that the unemployment rate could go down after a stringent environmental policy is imposed.The net unemployment effect of environmental regulations is sensitive to the absorption capacity and frictions level of the clean sector.This provides a plausible explanation on why the literature finds inconclusive results on the net unemployment effects of environmental regulations.This thesis contributes to the literature about the in-depth study about the interactions between environmental regulations and the changes in the labor market.Firstly,a general equilibrium model is incorporated with search frictions and environmental resource to show the mechanism and transmission path of the effect of environmental regulations on unemployment and employment reallocation.The model considers not only the micro enterprises’ functions,such as production factor,emission abatement and employment choice,but also the linkage reaction of employment change in the whole economy.We provide a theoretical support on the ambiguous sign of unemployment responses to policy shocks with this simple model in which the sign of the unemployment responses is determined by a battle between a negative scale effect and a positive general equilibrium effect(as well as the substitution effect and creation effect as shown in the model with abatement labor).Secondly,fitting the general equilibrium model with search frictions to Chinese time series data,the model is stimulated to quantitatively calculate the specific policy effect of China’s environmental regulation on the aggregate unemployment rate and labor reallocation during the 12th Five-Year Plan period.According to the quantitative results,this dissertation analyzes the static and dynamic effects of the policy shock on the aggregate unemployment rate and allocations of workers in the short run and long run.Giving full play to the advantages of quantitative analysis of macro general equilibrium model,we perform sensitivity tests to examine the robustness of this quantitative model and to find out the important factors that may affect the quantitative predictions of the model.According to these quantitative results,policy suggestions are put forward for the formulation and improvement of environmental laws and regulations in China.Finally,the thesis develops a tractable framework for incorporating environmental resources,emission abatement,search frictions of the labor market,unemployment and other factors in a general equilibrium model.The framework can systematically and comprehensively explore the overall impact of environmental regulation on employment,and can also be used to a wide range of other questions that involve environmental policies and unemployment,making up for the lack and defects of research in this field. |
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