A new hypothesis for the unemployment-environment dilemma: is the environmental Phillips curve valid in the framework of load capacity factor in Turkiye?

Abstract

To date, economic growth, development, and employment have been among the priorities of governments. However, as human-induced environmental damage has reached unsustainable levels, neglected environmental factors have been brought into the equation for future policy. The environmental Phillips curve (EPC) is one of the challenging equations that presents governments with a dilemma between unemployment and environmental quality. With this motivation, this is the first time the paper questions the validity of the EPC in Turkiye. Moreover, in contrast to the EPC literature, the paper uses the load capacity factor to focus on environmental quality rather than pollution. In this framework, the empirical model analyses the effect of gross domestic product, unemployment rate, natural resource rents, and primary energy consumption on the environmental quality for 1982-2022. The newly developed Augmented Autoregressive Distributed Lag (A-ARDL) with Fourier term results reveal that (i) the model is cointegrated; (ii) unemployment confirms the validity of EPC by promoting environmental quality; and (iii) gross domestic product, natural resource rents, and primary energy consumption accelerate environmental degradation. The findings indicate that employment and environmental policies cannot be successful simultaneously. To solve this puzzle, efforts should be made towards environmentally friendly forms of production, such as renewable energy sources. These policies can both stimulate employment and improve the environment.