Systems-dynamic analysis of employment and inequality impacts of low-carbon investments

Abstract

This paper provides a macroeconomic framework to evaluate the social and economic consequences generated by a shift of investment to low-carbon options. We introduce into a standard growth framework a modified Lotka–Volterra model for wage and employment determination to address both the long-run dynamics of the economic system in terms of carbon emission and GDP growth and the short-term macroeconomic fluctuations in terms of unemployment and inequality. We use this framework to compare the results of different combinations of three strategies for carbon emissions reductions: improvement in energy efficiency, expansion of the renewable energy sector, and the direct reduction in carbon emissions. We show that the shift to low-carbon investment required to achieve the targeted reductions increases employment and the labour share but slows down GDP growth and wages.