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Resolving Coordination Frictions in Green Labor Transitions: Minimizing Unemployment, Costs, and Welfare Distortions

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  • Adhikari, Shisham

Abstract

Successfully transitioning to a low-carbon economy by 2050 necessitates not only technological advancements but also the swift reallocation of the workforce. Existing policies, such as the Inflation Reduction Act (IRA), focus on firm subsidies while overlooking critical labor market coordination frictions. Workers face high entry costs and uncertainty about green job opportunities, while firms hesitate to invest without a reliable labor supply. This creates a coordination problem: workers are reluctant to enter the green sector without job guarantees, and firms delay expansion without sufficient workers. This paper extends the Diamond-Mortensen-Pissarides (DMP) model to incorporate these coordination frictions, calibrating it to U.S. labor market data. By evaluating subsidies targeted at firms, workers, and a combined strategy, the analysis shows that while individual subsidies can achieve the green employment target of 14% by 2030, a combined approach is far more efficient. It aligns incentives, reduces unemployment, and minimizes fiscal costs, highlighting the necessity of addressing coordination frictions to ensure a cost-effective and equitable green transition.

Suggested Citation

  • Adhikari, Shisham, 2025. "Resolving Coordination Frictions in Green Labor Transitions: Minimizing Unemployment, Costs, and Welfare Distortions," MPRA Paper 123479, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:123479
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    References listed on IDEAS

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    More about this item

    Keywords

    Green transition; Policy misalignment; Coordination friction; Unemployment; Fiscal efficiency; Search-match model;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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