Clean job creation versus dirty job destruction: labor market dynamics and business cycles

Purpose This paper studies how the green transition affects labor-market reallocation, business-cycle dynamics and distributional outcomes. It focuses on the distinction between clean job creation and dirty job destruction and how these adjustment margins affect high- and low-skilled workers differently. Design/methodology/approach We develop an environmental dynamic stochastic general equilibrium (DSGE) model with search-and-matching frictions, clean and dirty sectors, and high- and low-skilled workers. Transition risk is modeled through four skill-specific job-flow shocks, distinguishing clean job creation from dirty job destruction. Findings The paper finds that job creation and job destruction are asymmetric channels of adjustment. Clean job creation supports sectoral reallocation but generates limited aggregate fluctuations. By contrast, dirty job destruction produces larger business-cycle effects, especially when it affects low-skilled workers. Low-skilled dirty job destruction generates the largest output losses, stronger inflationary pressures and the most severe distributional effects, widening both consumption inequality and the wage premium. Originality/value The paper treats transition risk as a labor-market reallocation process rather than solely as a carbon-pricing shock. By separating creation and destruction margins and introducing skill heterogeneity within both sectors, it identifies the channels through which the green transition affects workers unevenly.