Employment double dividend hypothesis with the presence of a trade union

Abstract

Trade unions have a long history in countries all over the world and play a crucial role in the wages of employees through the mechanism of wage bargaining. However, this is often ignored in studies on environmental taxation. We consider a differentiated duopoly competing in a Cournot space after the wages of employees are negotiated with a trade union. We show that a positive emissions tax (resp. an emissions subsidy) is always optimal when emissions per unit of production are too high (resp. less than a certain threshold). When the emissions level is within a certain range, the union’s bargaining power impacts the government’s environmental policy choice between a positive emissions tax and an emissions subsidy.