Labor market dynamics are often missing from macroeconomic models, including those used by Ministries of Finance.
While studies do tend to find that the green transition would lead to more job creation, these generally rely on assumptions of a flexible labor market. Accounting for frictions in macroeconomic models is important, as associated analysis can help MoFs design effective labor market policies to manage the impacts of the transition.
- Several of the World Bank’s Country Climate and Development Reports (CCDRs) analyze labor market frictions empirically, including mismatches in skill, location, salary, and time via approaches based on network analysis. Efforts are underway to integrate these insights into macroeconomic models.
- A recent study in Brazil incorporated skill- and location-related frictions into an agent-based model, which was then linked to a computable general equilibrium model to provide insights into regional and occupational unemployment outcomes associated with different development scenarios.
- MoFs can adopt strategies to identify opportunities for stimulating economic growth and boosting job creation though investments in green sectors to address regional disparities in employment.
Challenges include the availability of detailed employment data, the varying classification of occupations across countries (which complicates cross-country comparisons), and applying a consistent methodology. Work is underway to integrate labor market frictions into the World Bank’s macroeconomic models. Upon request, the World Bank can collaborate with MoFs to adjust their own models or to utilize World Bank models.
Keywords
data challengesdistributional consequenceslabormodelstechnical assistance
