Green transition and jobs: Climate policies in changing the skill demand and occupational structure in the labor market

Abstract

Green transition is expected to launch a large labor market transformation by changing the structure of the labor market and the workforce composition. That is, some jobs may disappear, some may be created, and some may transform. This will, most likely, change the skills demanded and potentially accentuate existing distributional effects.

This paper is a literature review on how the labor markets are affected by the implementation of climate policies. With a focus on papers that exploit a shift-share instrument methodology, I study whether the “job-killing” argument holds, how the effects of climate policies are distributed, and what kind of skills are valued in the transition. Simultaneously, I aim to evaluate the suitability of the shift-share method and its assumptions in the context of studying the labor market impacts of climate policies.

I find that the effects of climate policies are distributional, in favor of high-skilled workers in green jobs with technical or engineering skills, but the effects on aggregate employment remain modest. Additionally, the skill gap between “green” and “brown” jobs appears to be generally smaller than expected. As for the applicability of the shift-share instrument methodology, I find that the results of papers studying the labor market impacts of climate policies utilizing the shift-share method are in line with those using other methods, which suggests that the method is suitable for studying this phenomenon. However, I find the underlying assumptions of shift-share strategies in these papers to be ambiguous to an extent.