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The interplay between green policy, electricity prices, financial constraints and jobs: firm-level evidence

Author

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  • Bijnens, Gert
  • Hutchinson, John
  • Konings, Jozef
  • Saint Guilhem, Arthur

Abstract

Increased investment in clean electricity generation or the introduction of a carbon tax will most likely lead to higher electricity prices. We examine the effect from changing electricity prices on manufacturing employment. Analyzing firm-level data, we find that rising electricity prices lead to a negative impact on labor demand and investment in sectors most reliant on electricity as an input factor. Since these sectors are unevenly spread across countries and regions, the labor impact will also be unevenly spread with the highest impact in Southern Germany and Northern Italy. We also identify an additional channel that leads to heterogeneous responses. When electricity prices rise, financially constrained firms reduce employment more than less constrained firms. This implies a potentially mitigating role for monetary policy. JEL Classification: E52, H23, J23, Q48

Suggested Citation

  • Bijnens, Gert & Hutchinson, John & Konings, Jozef & Saint Guilhem, Arthur, 2021. "The interplay between green policy, electricity prices, financial constraints and jobs: firm-level evidence," Working Paper Series 2537, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212537
    Note: 688159
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    Cited by:

    1. Çürük, Malik & Rozendaal, Rik, 2022. "Labor Share, Industry Concentration and Energy Prices : Evidence from Europe," Discussion Paper 2022-023, Tilburg University, Center for Economic Research.
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    More about this item

    Keywords

    employment; environmental regulation; labor demand; manufacturing industry; monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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