Labour reallocation and production-network recomposition in the green transition

2026-10-02

AI Summary

This study addresses how climate policies reshape production networks and labor allocation. To investigate this, it develops an agent-based monetary input-output model integrating heterogeneous agents, emission accounting, and global multi-regional data, combined with scenario simulations and econometric calibration to quantify industrial restructuring and labor reallocation effects during the green transition. The findings reveal asymmetric network position shifts driven by fossil fuel contraction and low-carbon industry expansion, demonstrating that carbon pricing exacerbates transitional unemployment risks. By establishing a novel micro-macro linkage analytical framework, this work provides critical insights for evaluating structural adjustment pressures under rapid decarbonization pathways.

Abstract

A growing number of countries are adopting policies to reduce greenhouse-gas emissions, a process expected to reshape production systems and labour markets by altering relative prices and changing production and demand patterns across sectors. We develop an agent-based monetary input--output network model to analyse the medium-term effects of climate policies on production networks and sectoral labour allocation. The model features heterogeneous industries and households, incorporates greenhouse-gas emissions accounting, and is calibrated to a multi-regional input--output database covering the world economy. We simulate two alternative climate-policy scenarios over 2026--2035: one based on countries'nationally determined contributions and another targeting larger reductions in global emissions. The results reveal significant economy-wide reallocation: fossil-energy sectors contract, low-carbon energy sectors expand, and their positions within production networks change asymmetrically. Fossil energy loses relevance as a direct supplier and exerts less forward influence, while its remaining production becomes more dependent on intermediate inputs and upstream suppliers; low-carbon energy primarily strengthens its role as a supplier. Carbon pricing also generates sectoral labour gaps that, under mobility frictions, imply greater potential transitional unemployment. Because the model allows only limited technological change and adjustment within existing production links, the simulations provide a counterfactual assessment of how existing production structures respond to a relatively rapid climate transition, revealing the adjustment pressures that emerge when policy ambitions advance faster than the productive system's capacity to adapt.

Problem

• green transition
• production networks
• labour reallocation
• climate policy
• structural unemployment

Innovation

• Agent-based model
• Input-output network
• Greenhouse-gas emissions accounting
• Labour reallocation
• Climate policy simulation