Labour Market Consequences of a Transition to a Circular Economy - presentation by Frithjof Laubinger
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The document summarizes research on the labour market consequences of a transition to a circular economy. Modelling studies suggest such a transition could lead to a net positive effect on employment of 0-3% if revenues from material taxes are used to reduce labour taxes. However, impacts are likely to vary across sectors and countries depending on local economic specialization. There is still uncertainty around how job types and skills requirements may change with the circular economy transition. More detailed modelling is needed to better understand skills implications.
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Labour Market Consequences of a Transition to a Circular Economy - presentation by Frithjof Laubinger
- 1. LABOUR MARKET CONSEQUENCES OF A TRANSITION TO A CIRCULAR ECONOMY Frithjof Laubinger OECD Environment Directorate WCEF Side Event 7 December 2020
- 2. • Many circular economy roadmaps emphasize job potential: – EU CE Package: 170,000 direct jobs by 2035 – French ‘50 Measures for the CE’: 300,000 jobs – Finland Roadmap to CE: 75,000 jobs Circular economy transition & jobs
- 3. How do policies induce changes on labour markets? Partial effectsDrivers Δ in production modes Δ in demand patterns Δ in aggregate income and macroeconomic conditions Job creation Job substitution Δ in international trade and competitiveness Job destruction Job redefinition Aggregatelabourmarketimpact Policy changes
- 4. Expected sectoral changes Cumulative shares of materials use and employment per sector in 2011 Sectors sorted by total materials use in 2011
- 5. • 47 scenarios from 15 modelling studies reviewed • A standardized comparison is challenging because models differ: – Type of model (macro-econometrics, CGE, Input-Output,…) – Scope (global, regional, national) – Time period – Assumptions (e.g. on labour markets) – Indicators reported (DMC, RMC, Resource productivity) • All were converted to Material Intensity Review of macroeconomic modelling literature
- 6. Employment effects of reviewed modelling studies Scenarios until 2030 or shorter Scenarios until 2050 Employmentimpact (Differencetobaseline)
- 7. Revenue recycling substantially drives employment result Job losses (and gains) can be more significant in certain sectors Uncertainty about the future skill composition of the CE and labour mobility Increasing resource efficiency and a positive employment effect seems possible Employment Material Intensity [DMC/GDP] GDP
- 8. Main messages • Reviewed modelling studies suggest CE transition can lead to a net positive effect on employment (0-3%) • Allocation of revenues from material taxes matters: reducing labour taxes can help improve employment outcome • Labour impacts are likely to be asymmetric within and across countries, the specialisation and composition of local economies plays an important role in how the transition will play out – Aspects of job quality, job duration and gender also important to consider
- 10. • Research on skills requirements for the RE-CE is still scarce • Most studies discuss total employment rather than the types of jobs • Uncertainty about the future skill composition of the CE • Lack of detailed data There is a paucity of modelling analyses that look into skills of the RE-CE transition Circular economy transition and skills
- 11. Mechanisms and drivers of labour implications ≠ • Job creation • Job substitution • Job destruction • Job redefinition
- 12. Mechanisms and drivers of labour implications Changes in production modes Changes in demand patterns Aggregate income and macroeconomic conditions Trade and competitiveness ≠
- 13. Macroeconomic modelling useful ++ ++ - + - -• Employment effects highly complex • Global value chains -> global implications • Macroeconomic modelling useful to provide insights in dynamics • Overall literature is scarce, but some reviewed labour effects
- 14. • 47 scenarios from 15 modelling studies reviewed • A standardized comparison is challenging because models differ: – Type of model (macro-econometrics, CGE, Input-Output,…) – Scope (global, regional, national) – Time period – Assumptions (e.g. on labour markets) – Indicators reported (DMC, RMC, Resource productivity) • All were converted to Material Intensity Review of macroeconomic modelling literature
- 15. Revenue recycling substantially drives employment result! Assumptions on efficiency gains / multipliers generate income effect that boost employment Changes in sectoral composition of employment is only discussed in a few studies Results: increasing resource efficiency and boost employment seems possible Employment 0 to +3% Material Intensity GDP
- 16. • Research on skills requirements for the RE-CE is still scarce • Most studies discuss total employment rather than the types of jobs • Uncertainty about the future skill composition of the CE • Lack of detailed data More quantitative modelling analyses needed that look into skills of the RE-CE transition! Circular economy transition and skills
Editor's Notes
- Provide an overview what the macro-economic modelling literature is saying about labour market consequences of the CE transition
- Distributional aspects in transitions are key and employment implications of the circular economy transition are an important aspect to ensure that a transition to a CE is just. Besides reducing materials consumption, many circular economy roadmaps emphasize on the Job potential of transitioning to a CE: EU: Circular Economy package: 170,000 direct jobs created in the EU by 2035 France: ’50 measures for the circular economy’: 300,000 new jobs in France Finland: Roadmap to CE 75,000 Job creation. However, the RE-CE transition may also affect jobs negatively in certain sectors. (for instance in extractives and materials intensive sectors.) It is thus important to look at the labour implications of the CE transition. In this presentation, I will describe the underlying dynamics of labour market changes and provide an overview of the economic modelling literature on the topic.
- Left to right: A policy change can induce a number of effects on the macroeconomy: Changes in production modes, demand patterns, aggregate income and international trade and competitiveness. These can induce a number of effects on labour markets: Job creations, job destructions, job substitutions and job redefinitions.
- Looking at the current structure of the economy, can help identify where labour effects arise. The sectoral composition of the economy is likely to change, as different sectors are likely to be affected differently, with implications for employment in these sectors. On this graph you see the cumulative shares of materials use and employment per sector in 2011, sorted by materials use from left to right. You can see that construction, which provides the largest bulk of materials use (46%) only provides 8% of employment. On the other hand, most employment is provided by the services sectors. A transition to a more circular economy is expected to shift economic activity from sectors with high materials footprint towards more sertivisation. These sectoral changes can lead to an overall job creation as sertivisation is more labour intensive. However job losses and distributional impacts are also important to consider and should not be neglected.
- As part of the OECD WP we reviewed 47 scenarios from 15 studies. It is challenging to compare modelling results in a standardized way, as scenarios differ: type of model (e.g. macro-econometric, CGE, input-output models) Scope (country, regional, global), Time period (until 2030 or 2050, different start dates) assumptions on labour market (labour supply and productivity and mobility) Indicators reported: Resource productivity, DMC, RMC. These were all transformed into MI.
- Most of the modelling studies indicate that it seems possible to become more resource efficient and increase employment at the same time. Most studies predict a positive effect on employment ranging from 0-3% together with significant resource decoupling. The way how revenues from materials taxes are recycled substantially influences the employment outcome. The average employment effect of ETR scenarios lies at 2.3%, while the average effect of non-ETR scenarios is marginally negative at -0.07% At the same time different assumptions are made on efficiency gains and income effects that boost employment. Furthermore, the sectoral composition of employment is only discussed in a couple of studies.
- Reviewed modelling studies suggest RE-CE leads to a net (small) positive effect on employment
- Despite a growing field of modelling literature on the employment implications of a circular economy transition, research on skills requirements for a RE-CE transition is still scarce. Most studies only discuss the total employment effects, rather than the types of jobs that are affected. It is still uncertain how a future skill composition of a circular economy will look like. In particular, there is a paucity of quantitative modelling analyses that assess the incidence of skills in a RE-CE transition. This is largely due to the lack of available data. Coarse sectoral aggregation of existing datasets do not allow for a detailed analysis. There is more quantitative modelling needed that look into skills needs of the RE-CE transition.
- In principle there is nothing different between the mechanism at play at a circular economy transition as with the green growth transition. The underlying dynamics are similar and we can learn from the literature that has been produced with regards to these topics. Four mechanisms drive the structure of employment: Jobs can be created: e.g. new ‘green’ jobs that are stimulated though circular economy policies Job can be substituted: e.g. induced by a shift in economic activity Job can be lost without direct replacement. Job can be redefined: e.g. where jobs change their day-to-day skillset as part of the overall transition.
- Different drivers can contribute to these changes: (i) Firms changing their production modes may require fewer raw materials and more secondary materials and labour demand needs to adjust accordingly. (ii) Changes in demand patterns can lead to expansion and contraction of industries and their jobs. (e.g. from resource efficient to more circular/recyclable products) (iii) aggregate income and macroeconomic conditions e.g. aggregate demand and supply (iv) trade and competitiveness e.g. different policy environment can result in a shift in competitiveness and trade.
- Circular economy policies can affect employment in different and complex ways. Considering that labour dynamics are increasingly structured along global value chains, labour dynamics can often extend across borders and involve large complexities. Economic models are useful to provide quantified results to which mechanisms dominates and provide insights into the dynamics. Overall literature is still scarce, but several modelling studies have reviewed labour effects in their scenarios.
- As part of this paper we reviewed 47 scenarios from 15 studies. It is challenging to compare modelling results in a standardized way, as scenarios differ: type of model (e.g. macro-econometric, CGE, input-output models) Scope (country, regional, global), Time period (until 2030 or 2050, different start dates) assumptions on labour market (labour supply and productivity and mobility) Indicators reported: Resource productivity, DMC, RMC. These were all transformed into MI.
- Most of the modelling studies indicate that it seems possible to become more resource efficient and increase employment at the same time. Most studies predict a positive effect on employment ranging from 0-3% together with significant resource decoupling. The way how revenues from materials taxes are recycled substantially influences the employment outcome. The average employment effect of ETR scenarios lies at 2.3%, while the average effect of non-ETR scenarios is marginally negative at -0.07% At the same time different assumptions are made on efficiency gains and income effects that boost employment. Furthermore, the sectoral composition of employment is only discussed in a couple of studies.
- Despite a growing field of modelling literature on the employment implications of a circular economy transition, research on skills requirements for a RE-CE transition is still scarce. Most studies only discuss the total employment effects, rather than the types of jobs that are affected. It is still uncertain how a future skill composition of a circular economy will look like. In particular, there is a paucity of quantitative modelling analyses that assess the incidence of skills in a RE-CE transition. This is largely due to the lack of available data. Coarse sectoral aggregation of existing datasets do not allow for a detailed analysis. There is more quantitative modelling needed that look into skills needs of the RE-CE transition.