• Firm bias against inexperienced workers leads to inefficient unemployment and persistent productivity losses.
• Targeted hiring subsidies that elevate entrants in firm rankings yield the largest welfare gains among all interventions.
• When sufficiently strong, these subsidies bring the economy close to the constrained efficient outcome.

• Policy design matters: One-sided subsidies (to firms or workers alone) can meet green targets, but with higher unemployment and fiscal costs.
• Dual-targeted subsidies are optimal: Coordinated support for firms and workers reduces unemployment by up to 18% and fiscal costs by up to 24%.
• Welfare threshold: Net gains arise only if the environmental externality equals at least a 0.6% productivity boost.

A large empirical literature has linked weather shocks to GDP to estimate future losses from climate change and has obtained a wide range of results. We develop a framework that nests past approaches, distinguishing between modelling assumptions about how changes in climate variables translate into GDP impacts. We show how four prominent model choices in the literature are related to different assumptions about the persistence of impacts and adaptation. We follow recent developments and apply our framework to extreme weather shocks, including extreme heat and harsh droughts, using high-resolution climate projections to obtain long-term GDP impacts. We compare results under the four different modelling assumptions and show that they play an outsized role in determining the size of impacts. Finally, we quantify the role of different sources of uncertainty. The goal is to provide a structured method that can be used for policy-relevant macro-fiscal projections and frameworks.

• Mechanism: Search frictions and endogenous skill choice create a coordination problem that depresses manufacturing labor supply below the efficient level.
• Impact: Correcting the distortion raises manufacturing’s share of the labor force by up to 3%, with the required subsidy equivalent to roughly 33% of the manufacturing wage.
• Budget: The policy’s fiscal cost is modest relative to sectoral wage bills, making it feasible for emerging‐economy governments.

• Design: Subsidies are most effective when targeted at tasks where green inputs closely match traditional productivity.
• Trade-offs: Welfare gains arise only when the environmental externality exceeds 1.2, with a 4.3% consumption-equivalent threshold.
• Financing: Lump-sum taxes impose the lowest welfare cost, followed by capital-income taxes; labor taxes are most distortionary.