How shifting investment towards low-carbon sectors impacts employment: Three determinants under scrutiny

Abstract

The threat of climate change requires redirecting investment towards low-carbon sectors, and this shift generates heated debates about its impact on employment. Many studies exist, most of which use CGE or Input-Output (IO) models. However, the economic mechanisms at play remain unclear. This paper disentangles the channels of job creation and studies to what extent the results of simpler IO models diverge from CGE results.Using stylized models, we show that a shift in investment creates jobs in IO if it promotes sectors with a higher share of labour in value added, lower wages or a lower import rate. In CGE, the first two channels also yield job creation, but there is no positive impact of targeting low-imports sectors -unless these do not export. Then we undertake a numerical analysis of two policies: the installation of solar panels and weatherization in France. Both policies have a positive effect on employment, in both models, due to the high share of labour and low wages in these sectors. IO results provide a good approximation of CGE results for solar (-14% to +34%) and are slightly higher for weatherization (+22% to +87%).Our findings challenge the idea that renewables boost employment by reducing imports, but they also suggest that a double dividend can be achieved by encouraging low-carbon labour-intensive sectors. Highlights• We identify three channels of job creation when redirecting investments • Encouraging labour-intensive or low-wage sectors creates employment in CGE and IO models • Encouraging low-importing sectors generates a marked positive effect in IO, but little to no effect in CGE • Numerically, investing in solar panels or weatherization creates jobs in both models.

El empleo en un futuro de cero emisiones netas en América Latina y el Caribe

“…As a result, the models ignore adjustment effects. Input-output analyses do, however, offer a clear picture of which sectors will be most affected under each scenario (Perrier and Quirion, 2018). In addition, the simulations here are based on the assumption that labor productivity grows similarly in all sectors, following projections from the OECD (Guillemette and Turner, 2018).…”

The long-term effect of renewable electricity on employment in the United Kingdom

“…Using a panel dataset of 80 countries, [56] find positive impact of renewable energy consumption on unemployment in European Union and Africa while negative in Asia and Latin American countries. [57] describe the existence of three economic channels for job creation, so that a shift in investment towards renewables increases employment if it targets sectors with a higher share of labour compensation out of value added, lower wages or lower import rates. The authors found positive employment impacts arising from weatherproofing and solar panels, a result that is robust across models used in the study.…”

Does climate action destroy jobs? An assessment of the employment implications of the 2‐degree goal

“…As an alternative to input-output (IO) models, computable general equilibrium (CGE) models are also used to estimate employment impacts of technological change Perrier and Quirion (2018). estimate the employment impact of investing in low-carbon sectors in France using both IO and CGE models.…”