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Green transition and supply of skills

The report is an overview of knowledge that should give an in-depth picture of how the green transition can affect and is affected by the companies' supply of skills, how the demand and supply of labor is expected to change and what role the state can play.

The pace of the green transition needs to increase for us to be able to reach the climate goals and live up to the EU's Fit for 55 requirements. Environmental and climate regulations put pressure on companies to switch to climate-neutral production, which requires innovations and investments in real capital. For some companies, the transition will be undramatic, for others a major challenge. Parallel to the green transition, several megatrends are underway; digitization, automation and demographic changes are some of them. All these ongoing changes can have consequences on the labor market.

In addition to investments in production technology, labor and a new type of competences may be needed to carry out the green transition. As with all structural transformations, labor tied to the old products and production methods may be found redundant and out of jobs. The link between the green transition and the labor market has not been paid attention to until recently and it varies how much importance different countries attach to the issue (OECD 2022; OECD 2023a).

The aim of the report

The aim of this report is to provide a knowledge overview of the expected consequences of the green transition for the labor market. Through a literature review, we examine (i) theoretically, how the green transition should affect the demand for labor, (ii) what forecasts and empirical results indicate about the demand for labor in the economyas a whole and in the industries concerned, (iii) what kind of competence will be in demand and how that competence can be matched to the demand, as well as (iv) which issues linked to policy are relevant for the Swedish labor market. This work is part of a larger framework project on labor shortages, skills shortages and STEM occupations in the Swedish labor market, where the first one focused on the concepts of skills shortages and work shortages.

The report's findings

The report's findings regarding expected labor market effects in quantitative terms are summarized with the following four points.

  • Theoretical effect. According to microeconomic theory, environmental regulations lead to production becoming more expensive at the margin for emission-intensive ("brown") firms. Theoretically, there are two effects of the green transition that affect the labor market. The output effect, where lower production levels in emissionintensive industries due to higher (environmental) costs, points to a reduced demand for labor in these industries. The substitution effect, that companies try to replace emission-intensive, expensive real capital with the relatively cheaper labor,means that the demand for labor decreases if environmentally friendly "green" technology is a substitute for labor and increases if labor is complementary to green real capital.
  • Expected effect according to forecasts. Many policy actors use simulation models to carry out forecasts ex-ante and the results indicate that the expected net effect on the total number of jobs in the economy is marginally positive. The effect on labor demand in many emission-intensive industries is expected to be negative, but it is probably offset by more jobs in environmentally friendly industries, for example renewable energy and construction (of infrastructure and energy renovations). Also, more jobs in "white" industries that are not particularly affected by environmental requirements, e.g. service professions, can offset lost brown jobs when the economy is expected to grow overall compared to the initial situation.
  • Expected effect according to empirical results. Empirical evaluations of different kinds of environmental regulations’ effect on labor demand arrive at mixed results; positive, negative and no statistically significant results. The tendency is possibly in the positive direction in capital and emission-intensive industries, which might be explained by the fact that these industries are very capital-intensive and therefore have difficulty reducing the number of employees further; their environmental investments are likely to be more labor intensive than their core business. The effect on wages is slightly positive, if anything. The jobs will not necessarily be evenly distributed geographically; a tendency is that green jobs are more likely to be found in regions with larger cities and higher education institutions.
  • Effects in Sweden. Since the directly affected industries employ relatively few people in Sweden and the prospects of many of the emission-intensive industries to make the transition are good, the loss of brown jobs due to green transition is not a major concern. Risk of job loss is mentioned in manufacturing of cars with internal combustion engines and, to some extent, in manufacturing. According to forecasts, more jobs are expected in renewable energy, construction, battery manufacturing – the latter may offset some of the lost automotive jobs. Mining is mentioned both as a potential job creator and for possible job losses.

Not just the net number of jobs will be an impact on the labor market. In terms of qualitative consequences regarding which competencies will be needed and how they are to be found, the results can be summarized with the following points.

  • Green skills in demand. Research suggests that skills that can be considered greener are STEM skills in general and engineering skills in particular, management skills, occupations that require higher education and technical education – including at secondary and vocational levels. Often the required level of education is expected to be higher in green occupations. Some professions mentioned for Sweden with a medium level of education are operators, drivers and technicians.
  • Green competences might be difficult to access for green transition. Competencies identified as green largely overlap with needs in an automated and digital economy. More men than women work both in brown sectors and in occupations that are expected to be in greater demand in the green economy. Both gender segregation in the labor market and professional identity can make recruitment into green industries more difficult. The number of graduates with an environment-related degree and in STEM does not seem to be able to meet the increased demand for such skills. Overall, this indicates that retraining and upskilling as well as a broadened labor pool would be desirable to gain access to green competence for green transition.
  • Regional conditions. Sweden has a relatively high proportion of green jobs found around metropolitan and university areas but also in Norrbotten, Västerbotten and Östergötland. New green and white jobs are expected to be added in several regions, especially in Norrbotten and Västerbotten. In northern Sweden, there is also labor demand in the white public sector, where demographic challenges make labor migration necessary. This can be a challenge as research has shown that the workforce is reluctant to move.

In terms of policy, a few points to highlight are summarized below

  • The uneven consequences of climate policy. Climate policy is expected to hit different groups differently. Groups with a lower average income have to bear a larger part of the cost of climate policy. However, it is important to pursue climate policy fully so that it becomes effective, and to compensate affected groups with separate policy instruments. The government should facilitate the transition of lowincome earners who lose brown jobs and/or compensate them. In Sweden, according to the forecasts, no specific region is expected to lose a disproportionate number of jobs, but, on the other hand, many new jobs will be added in the north.
  • Skills development to meet the green transition. Up-schooling and retraining is necessary to meet green skills demand. Some educational policies that have shown to work well are adult vocational training in collaboration with the industry and standalone courses for skills development of engineers, among others. To provide small companies and their employees with increased opportunities for continuing education individual training contracts have been suggested. The geographical matching is a difficult issue and becomes a particular challenge for northern Sweden in view of the great demand for labor and the demographic situation. Part of the workforce will be found abroad, so the state should continue to support international recruitment for shortage occupations.

Overall, the results and conclusions point to the fact that no major quantitative effects are expected on the Swedish labor market, however, the skills in demand will change both within brown, green and white sectors in a greener direction. Given that the skills that are expected to be in greater demand in connection with the green transition are already in demand in other areas or in other geographical locations, we recommend:

  • Monitor the development of brown jobs and facilitate adjustment for those who lose them.
  • Differentiate between green competencies that are necessary to make the transition and green jobs as a statistical measure. Green competence is more appropriate to steer towards in order to meet environmental goals and facilitate labor mobility
  • Adopt a holistic view of educational needs and educational supply: since needs will change over time and several structural changes are taking place at the same time, there is need for coordination.
  • Support recruitment to and delivery of education, particularily in STEM, management and industrial technical vocational and secondary education, preferably in consultation with the industry
  • Use any measures to stimulate labor demand broadly but facilitate the long-distance recruitment of shortage regions.

Green transition and supply of skills

Serial number: Rapport 2024:04

Reference number: 2024/85

Download the report in swedish Pdf, 1.2 MB.

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