11 LIFE CHANCES DURING AND AFTER THE GREEN TRANSITION

Bob Hancké, PEACS

11 March 2025

While the abstract macro-economic categories that I discussed a few days ago are important, citizens also live concrete lives, with jobs to go to and groceries to shop for. How will the green transition affect the everyday economics of average households? Our best, though not very informative, guess is that the real world of employment and inflation will be messy. On balance, though – and all else, including wars, tariffs and other supply shocks, some of which may admittedly result from the geo-economics associated with the green transition, equal – moving into another energy and production model is probably without significant long-term negative repercussions on the life chances of ordinary citizens and households. Put differently, in the short to medium term we will all face important shocks. In the long run, however, we are likely to be at least as well off then as we are now – and with a greener planet to live on.

Despite the reasonable concerns that we may have about the labour market during and after the transition, the short-term, immediate effect on jobs is also likely to be positive: some sectors, such as the care industry, will undergo tremendous turmoil, but for the wider economy, the employment effects will be very different, because of the dynamic effects on the labour market. The share of old, brown jobs will initially, i.e. over the next ten to fifteen years, only gradually fall while new green jobs will emerge at the same time. That will result in a short-term employment boom during the period when brown employment is still quite high and green employment is growing fast. Increased productivity is unlikely to absorb much of that demand because we are starting a new trajectory and have to learn new things; a few years into that transition, a steep learning curve may emerge but probably not at the start. That initial boom will be followed by a relatively quick deflation, when green job growth stabilises and brown jobs disappear. While that drop in employment may be significant, we can plan for this: much of this reduction in brown jobs can probably be organised around natural attrition through retirement and voluntary, subsidised departures. That said, the adjustment process will also require active and passive labour market transition strategies. Most of us live in and around large cities, i.e in local economies that are sufficiently diversified to absorb the labour market dynamics. But for some regions that are very dependent on highly regionally concentrated brown industries and their value chains, the need for public intervention will be sharpened by the urgency to avoid catastrophic local scenarios.

The need for labour market policies is also underscored by the shift in necessary skills for green jobs. Today, jobs in the environmental sector narrowly defined are often mainly semi- and unskilled – in, for example, waste management, rare materials, and some parts of renewable energy. Some of those will remain, but many of the jobs in the green future, this time found across industry, are likely to require skills in more advanced knowledge areas like software, materials science, chemical and mechanical engineering. What we understand today as relatively sophisticated technical skills are likely to become the low end of the future labour market, which will increasingly also demand basic engineering qualifications of the type that technical and community colleges produce. Take the example of the car industry, where the number and share of blue-collar workers has already fallen dramatically over the last thirty years, often to be replaced by technically educated employees. A few years ago, industry leaders agreed in a survey that these technicians would probably be the baseline for future employees and that overall education levels will, even in a traditionally blue-collar industry like automobiles, rise enormously. An analysis of jobs ads in the industry a few years ago by the European skills observatory CEDEFOP suggested that the technical skill requirements in these ads have changed significantly and are now focussed on advanced engineering, materials, and electronics.

Very few educational systems are ready for this shift, and remarkably few public education policies seem to address it. Yet leaving it to companies is not really a solution: the one local company that does not train will benefit from the efforts of the others by poaching its trained workers without incurring training costs; reluctant to subsidise the competition, the latter would end their training programmes as well, and the outcome is a low-skill equilibrium in which all need higher skills but no one trains. Some form of public governance is therefore necessary, and since the required skills are, in contrast to many technology-specific brown industrial jobs, relatively general in nature, many of those that are needed could be provided through standard government-based training and education programmes.

Beside employment, what about prices? In the short run, prices are likely to rise. Observers of a monetarist bent have already pointed out, when evaluating former president Biden’s green industrial policies, that the vast influx of money associated with investment in the green transition in a period of relative capacity constraints has pushed up prices. But even Keynesians and institutional political economists would consider that the likely increase in (high-paying) employment may have a detrimental effect on price stability, as businesses pass on wage increases in higher prices to consumers. Please note that these higher prices are for better, i.e. green, goods and services, probably produced more efficiently by productive workers with higher skills. If that is the case, this is likely more of a one-off jump than a continuing increase in prices. Institutionalist political economists would add that countries with highly organised labour markets including strong trade unions can probably absorb inflationary effects better than deregulated labour markets, but some form of government intervention may be necessary during the transition to stabilise prices.

This reintroduces the macro picture because central banks will end up playing an important role in this process, as they could smoothen or, if acting as inflation hawks, obstruct the path of the green transition. Government action to stabilise prices before central banks intervene could therefore ease them into the more permissive policy stance. Since the green transition is effectively a one-off supply shock, and inflation should fall back to its low rate in the medium run, after the structural dislocations are digested along the lines of the post-Covid deflation in 2023-24, governments, trade unions and employers should try to keep inflation in check to persuade central banks to remain sufficiently accommodating during the transition. Some form of coordination to avoid wage-price spirals may increase confidence of central bankers that government and social partners are planning on absorbing a temporary shock.

The real-world effects on employment and inflation therefore call for a negotiated, ‘just’ transition to manage employment effects and reduce inflationary pressures. (For those with a long memory, there is a vague echo here of the role of social pacts in the 1990s Maastricht process.) If the green transition is a one-off shift, followed by moderate, incremental adaptation, negotiations are the way to keep second-round inflationary effects under control and appease central banks. Government, in turn, could support this process with progressive tax policies that compensate for the falling purchasing power of lower-income households, coupled to a steady increase in carbon taxes.