Assessing the effects of labor market dynamics on CO2 emissions in global value chains

Abstract

International production fragmentation has led to substantial changes in labor market, such as job creation/job loss, changing labor market structure and labor productivity. Such changes are perceived to affect CO2 emissions of those economies that participate in different parts of global value chains. This paper develops an accounting framework relating CO2 emissions to labor market shaped by global value chains. It analyses the influential factors driving CO2 emissions, and documents several pervasive empirical patterns. This is based on the recent environmental accounts developed by the European Commission and the World Input-Output Database over 2000–2014. The results show that the growth of CO2 emissions is primarily reduced by intensity effect, followed by labor market structural change due to participation in value chains, while it is driven by labor productivity effect and job creation. In particular, the foreign job creation effect is mostly emission-increasing, even in those economies with shrinking domestic employment. These results highlight the role of labor market and global value chains in climate policymaking.