Proper labor market policies can facilitate the transition to green jobs – IMF Blog

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By John Bluedorn and Niels-Jakob Hansen

Measures include job training, tax credits for lower-income workers, green infrastructure and boosting R&D investment, and a carbon tax.

Consensus on the need to build a greener economy often undermines concern about potential job losses. It is one thing to agree that a shift away from fossil fuels is needed. But how easily can a coal miner, say, get into a job installing solar panels?

The answer should come as no surprise: for some workers, change will be difficult. But there is good news. With the right policy mix, countries need to be able to achieve zero net greenhouse gas emissions by 2050 – while relieving pain for workers in more intensive emissions industries, such as utilities. These policies include training programs for jobs and investments in green technologies, according to our latest analysis in Chapter 3 of the IMF World Economic Outlook.

Achieving the emission target

Limiting the average global temperature rise below 2 degrees Celsius above pre-industrial levels, a target set by policymakers in the 2015 Paris Agreement, will require a dramatic reduction in net greenhouse gas emissions. This green transformation will also bring about a transformation of the labor market, with the movement of jobs between professions and sectors. But the overall magnitude of this change will not necessarily be as dramatic as it may seem.

For advanced economies, a policy package designed to put the economy on the path to zero net emissions by 2050 would shift about 1 percent of employment from higher-emissions to lower-emissions jobs over the decade. next, our analysis shows. The shift is greater for emerging markets by about 2.5 percent. However, these figures are smaller than the shift from manufacturing to services in advanced economies since the mid-1980s. This has come to almost 4 percent of jobs every decade.

As our analysis shows, part of the reason why employment shifts in advanced economies may be modest is that a handful of jobs are either green-intensive, meaning they improve environmental sustainability (like electrotechnical engineers), or with intense pollution, which means that they are intense. particularly prevalent in highly polluted sectors (such as paper mill operators). Most workplaces are neutral – neither green nor heavily polluted.

Higher wages for greener jobs can also help ease the transition. In our analysis of advanced economies, we find that average green intensity work earns about 7 percent more than average pollution intensity work, even when skills, gender, and age profiles are checked. This is good news, as the premium could attract workers to greener jobs.

Policies to facilitate regulation

However, workers may still face significant challenges during the transition. Indeed, the data suggest that it is difficult to be greener. Our analysis estimates that the probability of an individual switching from a highly polluted job to an intensive green job is between 4 percent and 7 percent.

The odds are a little better for someone moving from neutral to green – 9 percent to 11 percent. In contrast, the chance of finding an intensive green job, if your last job was also green, is much higher at around 41 percent to 54 percent. This does not mean that workers in heavily polluted jobs do not have the chance to find greener jobs, but may need help.

This explains why it is so important to design labor market policies that can help shift the balance towards greener jobs and facilitate the transition for workers. This means increasing workers’ ability to find greener jobs – through the provision of training programs – and reducing incentives to stay in more pollution-intensive occupations. This includes the gradual return of job support, introduced at the beginning of the pandemic, as the recovery begins, as such policies may weaken incentives to change jobs.

This brings us back to the policy package that, our model-based analysis suggests, could help economies achieve zero net emissions by 2050. It has four elements:

  • An initial boost to investment in green infrastructure and R&D starting in 2023, with costs gradually reduced after 2028. This would support a modest increase in productivity in the less intensive emission sectors.
  • A carbon emission tax is gradually increasing from 2023, with a sharper increase from 2029 onwards. This increases the relative price of goods with more intensive emissions and stimulates growth in sectors with less intensive emissions.
  • A training program to help less-skilled workers move to greener sectors, starting in 2023. The training will help address distribution concerns by increasing the productivity of lower-skilled workers in higher-emission sectors. low, encouraging firms to hire them and increase their salaries.
  • An Income Tax Credit (EITC), which reduces taxes owed to lower-income workers. This would start in 2029 and offset the impact of the carbon tax on those workers. It would also encourage more people to enter the workforce.

For the advanced representative economy, we estimate that the policy package generates a reallocation of labor in the greener industries of about 1 percent over 10 years. It also increases total employment by 0.5 percent and increases tax revenues for lower-skilled workers, reducing inequality.

Emerging markets

The impact would be somewhat different for emerging market economies, where a higher percentage of workers are employed in sectors such as mining. It would generate a 2.5 percent shift in the workforce over 10 years. There would be an overall increase in employment in the near term with the start of green investments, but that would change to a 0.5 percent decline by 2032.

Also, developing economies generally have more employment in the so-called informal sectors, where income taxes are not always paid. Therefore, the package will have to be supplemented with direct cash transfers for low-income workers starting in 2029, along with the EITC and the carbon tax.

Policy actions are essential to provide incentives for the transition to a net zero economy by 2050. Timely and correctly implemented, these actions can facilitate the transition to greener jobs for a relatively modest segment of the workforce, increasing also skills and incomes for lower paid workers and reducing inequality. This will ensure that the path to a greener economy is also comprehensive.

—This blog, based on Chapter 3 of the World Economic Outlook, “A Greener Labor Market: Employment, Politics, and Economic Transformation,” also reflects research by Diaa Noureldin, Ippei Shibata, and Marina M. Tavares.

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