Unemployment Effects of Green Fiscal Reform: Economy-Wide Evidence from Indonesia
Abstract
This study evaluates the economy-wide employment effects of a combined green fiscal reform package in Indonesia and examines their implications for labour displacement and a just transition. A national comparative-static computable general equilibrium (CGE) model based on the WAYANG framework was calibrated to a Social Accounting Matrix derived from the 2020 Indonesian Input–Output Table. The model distinguishes 30 production sectors and nine occupational groups. The policy experiment simultaneously increases the tax on coal-fired electricity inputs by 10%, reduces the tax on solar-power inputs by 10%, and improves production efficiency in targeted agricultural sectors by 1%. No explicit revenue-recycling mechanism is imposed, and all outcomes are reported as percentage deviations from the 2020 benchmark equilibrium.
The combined reform produces heterogeneous employment effects across sectors. Employment declines most strongly in maize (−1.17%), fresh milk (−1.07%), paddy (−1.05%), poultry products (−1.00%), livestock (−0.94%), and groundnut (−0.93%). By contrast, employment expands most in meat and fish products (+0.72%), other agricultural products (+0.71%), and rice milling and rice products (+0.63%), indicating a reallocation of labour from several primary activities toward downstream and value-added production. Labour-price indices increase slightly, by 0.15–0.16%, although these increases do not consistently coincide with employment growth. Occupational employment responses generally follow the corresponding sectoral patterns, but skilled agricultural and forestry workers experience relatively stronger demand in selected manufacturing and service sectors.
Because the model does not directly estimate Indonesia’s official unemployment rate, negative sectoral employment changes are interpreted as potential displacement or unemployment pressure when released workers are not immediately absorbed by expanding activities. The findings suggest that green fiscal reform should be viewed not only as an environmental instrument but also as an employment-restructuring policy. Its implementation should therefore be accompanied by targeted reskilling, temporary income support, labour-mobility assistance, regional adjustment measures, and support for labour-absorbing downstream industries.
Keywords: green fiscal reform; sectoral employment; labour reallocation; computable general equilibrium model; unemployment pressure; just transition; Indonesia.
Full Text:
PDFReferences
Martín-Román, Á. L., Cuéllar-Martín, J., & Moral, A. (2023). Natural and cyclical unemployment: A stochastic frontier decomposition and economic policy implications. Bulletin of Economic Research, 75(1), 5–39. https://doi.org/10.1111/boer.12335
Ngubane, M. Z., Mndebele, S., & Kaseeram, I. (2023). Economic growth, unemployment and poverty: Linear and non-linear evidence from South Africa. Heliyon, 9(10), e20267. https://doi.org/10.1016/j.heliyon.2023.e20267
Bowen, A., Kuralbayeva, K., & Tipoe, E. L. (2018). Characterising green employment: The impacts of “greening” on workforce composition. Energy Economics, 72, 263–275. https://doi.org/10.1016/j.eneco.2018.03.015
Marin, G., & Vona, F. (2019). Climate policies and skill-biased employment dynamics: Evidence from EU countries. Journal of Environmental Economics and Management, 98, 102253. https://doi.org/10.1016/j.jeem.2019.102253
Burke, P. J., Widnyana, J., Anjum, Z., Aisbett, E., Resosudarmo, B., & Baldwin, K. G. H. (2019). Overcoming barriers to solar and wind energy adoption in two Asian giants: India and Indonesia. Energy Policy, 132, 1216–1228. https://doi.org/10.1016/j.enpol.2019.05.055
Savelli, A., Atieno, M., Giles, J., Santos, J., Leyte, J. E. D., Nguyen, N. V. B., Koostanto, H., Sulaeman, Y., Douxchamps, S., & Grosjean, G. (2021). Climate-smart agriculture in Indonesia. CSA Country Profiles for Asia Series. The Alliance of Bioversity International and CIAT; World Bank Group. https://hdl.handle.net/10568/114898
Sekaringtias, A., Verrier, B., & Cronin, J. (2023). Untangling the socio-political knots: A systems view on Indonesia’s inclusive energy transitions. Energy Research & Social Science, 95, 102911. https://doi.org/10.1016/j.erss.2022.102911
Catalano, M., & Forni, L. (2021). Fiscal policies for a sustainable recovery and a green transformation (Policy Research Working Paper No. 9799). World Bank. https://doi.org/10.1596/1813-9450-9799
United Nations Environment Programme. (2019). Reducing pollution and health impacts through fiscal policies: A selection of good practices. https://greenfiscalpolicy.org/wp-content/uploads/2020/08/Good-practices-in-using-fiscal-policies-to-reduce-pollution-and-health-impacts-FINAL-17.7.2020-1.pdf
Hafstead, M. A. C., & Williams, R. C., III. (2018). Unemployment and environmental regulation in general equilibrium. Journal of Public Economics, 160, 50–65. https://doi.org/10.1016/j.jpubeco.2018.01.013
Yamazaki, A. (2017). Jobs and climate policy: Evidence from British Columbia’s revenue-neutral carbon tax. Journal of Environmental Economics and Management, 83, 197–216. https://doi.org/10.1016/j.jeem.2017.03.003
Setiartiti, L. (2021). Critical point of view: The challenges of agricultural sector on governance and food security in Indonesia. E3S Web of Conferences, 232, 01034. https://doi.org/10.1051/e3sconf/202123201034
Dafermos, Y., & Nikolaidi, M. (2019). Fiscal policy and ecological sustainability: A post-Keynesian perspective. In P. Arestis & M. Sawyer (Eds.), Frontiers of heterodox macroeconomics (pp. 277–322). Palgrave Macmillan. https://doi.org/10.1007/978-3-030-23929-9_7
Wang, X., Javaid, M. U., Bano, S., Younas, H., Jan, A., & Salameh, A. A. (2022). Interplay among institutional actors for sustainable economic development: Role of green policies, ecopreneurship, and green technological innovation. Frontiers in Environmental Science, 10, 956824. https://doi.org/10.3389/fenvs.2022.956824
Fragkos, P., & Paroussos, L. (2018). Employment creation in the EU related to renewables expansion. Applied Energy, 230, 935–945. https://doi.org/10.1016/j.apenergy.2018.09.032
Markandya, A., Arto, I., González-Eguino, M., & Román, M. V. (2016). Towards a green energy economy? Tracking the employment effects of low-carbon technologies in the European Union. Applied Energy, 179, 1342–1350. https://doi.org/10.1016/j.apenergy.2016.02.122
Pollitt, H., Alexandri, E., Chewpreecha, U., & Klaassen, G. (2015). Macroeconomic analysis of the employment impacts of future EU climate policies. Climate Policy, 15(5), 604–625. https://doi.org/10.1080/14693062.2014.953907
Geels, F. W. (2019). Socio-technical transitions to sustainability: A review of criticisms and elaborations of the multi-level perspective. Current Opinion in Environmental Sustainability, 39, 187–201. https://doi.org/10.1016/j.cosust.2019.06.009
Vona, F. (2023). Managing the distributional effects of climate policies: A narrow path to a just transition. Ecological Economics, 205, 107689. https://doi.org/10.1016/j.ecolecon.2022.107689
Consoli, D., Marin, G., Marzucchi, A., & Vona, F. (2016). Do green jobs differ from non-green jobs in terms of skills and human capital? Research Policy, 45(5), 1046–1060. https://doi.org/10.1016/j.respol.2016.02.007
Turner, K., Alabi, O., Katris, A., & Swales, K. (2022). The importance of labour-market responses, competitiveness impacts, and revenue recycling in determining the political-economy costs of broad carbon taxation in the UK. Energy Economics, 116, 106393. https://doi.org/10.1016/j.eneco.2022.106393
Rivers, N. (2013). Renewable energy and unemployment: A general equilibrium analysis. Resource and Energy Economics, 35(4), 467–485. https://doi.org/10.1016/j.reseneeco.2013.04.004
Garrett-Peltier, H. (2017). Green versus brown: Comparing the employment impacts of energy efficiency, renewable energy, and fossil fuels using an input–output model. Economic Modelling, 61, 439–447. https://doi.org/10.1016/j.econmod.2016.11.012
Carley, S., & Konisky, D. M. (2020). The justice and equity implications of the clean-energy transition. Nature Energy, 5(8), 569–577. https://doi.org/10.1038/s41560-020-0641-6
García-García, P., Carpintero, Ó., & Buendía, L. (2020). Just energy transitions to low-carbon economies: A review of the concept and its effects on labour and income. Energy Research & Social Science, 70, 101664. https://doi.org/10.1016/j.erss.2020.101664
Cha, J. M., & Pastor, M. (2022). Just transition: Framing, organizing, and power-building for decarbonization. Energy Research & Social Science, 90, 102588. https://doi.org/10.1016/j.erss.2022.102588
Harrison, W. J., & Pearson, K. R. (1996). Computing solutions for large general equilibrium models using GEMPACK. Computational Economics, 9(2), 83–127. https://doi.org/10.1007/BF00123638
BPS-Statistics Indonesia. (2025). Input–Output Tables Indonesia 2020 (Publication No. 07100.25001). https://www.bps.go.id/en/publication/2025/01/27/ea74e60a8662a70a734fa431/input-output-tables-indonesia-2020.html
Das, A., & Balachandra, P. (2025). Implications of electricity-system transition for employment: The gainers and the losers—A systematic literature review. Renewable and Sustainable Energy Reviews, 219, 115870. https://doi.org/10.1016/j.rser.2025.115870
Malik, A., Bertram, C., Kriegler, E., & Luderer, G. (2021). Climate policy accelerates structural changes in energy employment. Energy Policy, 159, 112642. https://doi.org/10.1016/j.enpol.2021.112642
Fabra, N., Gutiérrez, E., Lacuesta, A., & Ramos, R. (2024). Do renewable-energy investments create local jobs? Journal of Public Economics, 239, 105212. https://doi.org/10.1016/j.jpubeco.2024.105212
Winchester, N., Riggs, L., Mitchell, L., & White, D. (2025). Searching for a just transition: Micro-level employment impacts of climate policies. Energy Economics, 141, 108086. https://doi.org/10.1016/j.eneco.2024.108086
Weitzel, M., Vandyck, T., Rey Los Santos, L., Tamba, M., Temursho, U., & Wojtowicz, K. (2023). A comprehensive socioeconomic assessment of EU climate-policy pathways. Ecological Economics, 204, 107660. https://doi.org/10.1016/j.ecolecon.2022.107660
García-Muros, X., Morris, J., & Paltsev, S. (2022). Toward a just energy transition: A distributional analysis of low-carbon policies in the USA. Energy Economics, 105, 105769. https://doi.org/10.1016/j.eneco.2021.105769
Gasparini, D., Bakens, J., Mulder, P., & Pestel, N. (2025). How green are jobs for the energy transition? Energy Research & Social Science, 129, 104368. https://doi.org/10.1016/j.erss.2025.104368
Refbacks
- There are currently no refbacks.
