Reallocation of Labor Under Environmental Regulations and Imperfect Labor Market

Studies have shown a mixing effect of environmental regulations on employment. Even though the net impact on employment may be limited, it is likely to cause significant labor reallocation between clean and dirty sectors. This thesis developed a two-sector general equilibrium model to study the sectoral reallocation of labor caused by the environmental regulations taking into account the heterogeneity of the agents. The economy is composed of a clean sector and a dirty sector. The agents are grouped into two groups depending on the skill distances between the two sectors. By shocking the parameters in the numerical analysis, we observe that the training cost, the bargaining power of the agents in the clean sector and exit rate from training play important roles in the reallocation of labor.