Employment impacts of decarbonizing the economy: An alternative method between I-O analysis and CGE modelling

What are the impacts of an energy transition and green policies on employments? To answer this question, two approaches are widely used in the literature: Input-Output (IO) analysis and Computable General Equilibrium (CGE) models. While I-O analysis is a simple way to obtain a first approximation of the impacts, the method is linear, i.e. technical coefficients are assumed constant, and is thus not suitable in the case of large economic transition. On the other hand, CGE models accounts for substitution and price effects, but they are computationally and data expensive. Consequently, there is a need to design simple and sound methods to assess the impacts on employment of large economic transition, for example due to a deep decarbonization. To that end, we develop an alternative model. Firms are cost minimizers and are represented by nested CES production function, substituting between intermediate inputs and production factors. Households substitute between consumption and leisure. Labor market includes unemployment through a matching function. Contrary to the full optimization occurring in a CGE model, our approach is scenario-driven: intermediate and final demand in some sectors of interest is exogenously modified as in an I-O analysis. Then, the algorithm calculates the other intermediate inputs and final demand to respect firms and consumers behaviors. As an example, we perform a case study for Germany, analyzing changes in electricity and energy mix, transportation choices, and buildings retrofit, and we compare the results with standard approaches used in the literature.