What skills are needed to support sustainable industry?

The greening of our economies is expected to bring about long-term benefits in the form of reduced environmental damage but, also, significant opportunities and challenges. A growing concern is that the diffusion of environmentally-friendly technologies and organisational practices may trigger labour market disruptions such as faster obsolescence of worker know-how and a rapid acceleration of the demand for existing and new competencies that, if in short supply, would lead to skill gaps. As a consequence of such concerns, the catchword ‘green skills’ has become common parlance in policy circles, even more since government interventions like Europe’s 2020 strategy, or the Green Jobs Act in the US, have committed substantial resources to support ‘green jobs’ for sustainable economic growth (OECD/Cedefop, 2014).

In spite of a raging debate on the effectiveness of these actions, there is surprisingly little rigorous empirical research to guide public interventions for meeting changes in the demand for green skills. Yet, understanding the extent to which greening the economy can induce significant changes in the demand for certain skills and, most cogently, which skills these might be, is crucial to inform education and training policy that may offset obsolescence or prevent gaps in workforce know-how. Addressing these issues requires prior identification of the skills that are complementary to green technologies and organisational practices.

Green skills: What are they?

In recent research we propose a two-step strategy to identify skills that are used more intensively in green jobs relative to non-green ones (Vona et al 2015). The main data source is the ‘Green Economy’ program developed by the Occupational Information Network (O*NET) under the auspices of the US Department of Labor, which contains occupation-specific information on work tasks, education and experience requirements as well as characteristics of the work context. First, we compute a measure of skill Greenness as the ratio between the number of green specific tasks and the total number of specific tasks performed by an occupation. This allows us to rank green jobs based on how much time is devoted to a particular class of tasks that are related, more or less directly, to environmental sustainability (see Table 1). Interestingly, green occupations are most concentrated either among high-skilled professional profiles, such as managers and engineers, and low-skilled manufacturing and production occupations, such as construction workers or maintenance and repair workers.

Table 1. Examples of green occupation by level of ‘Greenness’

Note: Green occupations in O*NET include (1) those that are expected to undergo significant changes in task content (Green enhanced) and (2) entirely new ones (New and emerging) (Dierdoff et al 2009).

The above indicator is useful for assessing the importance of green tasks within each occupation and thus to reweigh employment statistics to quantify green employment. However, it carries limitations with regards to the goal of providing policy recommendations about the skills that are most relevant to green employment and that should ideally be targeted by educational programs. For this, in the second step of our methodology we identify general sets of skills that potentially complement green activities.  We regress the importance score of general work tasks in each occupation on our greenness indicator. Our resulting Green General Skills index identifies four groups of work tasks that are significantly important for green occupations:

1. Engineering and technical skills involved in the design, construction and assessment of technology. This type of knowhow is prominent for eco-building, renewable energy design and energy-saving R&D projects;
2. Science skills stemming from bodies of knowledge such as physics and biology. A Cedefop (2009) study indicates that these type of skills are in especially high demand at early stages of the value chains and in the utility sector;
3. Operation Management skills related to change in organisational structure required to support green activities through life-cycle management, lean production and cooperation with external actors, including regulators and customers (UNEP 2012);
4. Monitoring skills concerning the observance of technical criteria and legal regulatory requirements. Compliance with environmental laws and standards is especially important for firms operating in polluting sectors (OECD/Cedefop 2014).

It is worth highlighting that three out of four of these green skills (monitoring being the exception) are acquired through substantial training and formal education, in spite of significant concentration of green occupations both in high- and low-skilled jobs. The prevalence of these high-skill profiles resonates with previous research showing that new occupations exhibit higher levels of task complexity and exposure to new technology, relative to existing ones (Lin 2011). On the whole this reflects that the greening of our economies is at an early stage of its life-cycle.

Environmental regulation and the demand for green skills

Having identified a core set of green skills, it is natural to consider how regulations designed to promote environmental sustainability affect labour market outcomes. Previous research finds a range of outcomes from environmental regulation, ranging from job losses (Greenstone 2002) to no effect on employment at all (Berman and Bui 2001). We think that the emergence of a new technological paradigm is likely to do more than just create or destroy jobs, and will also stimulate the appearance of new occupations, new skills, and novel combinations of existing knowhow (Autor et al 2003). To better understand these aspects, we also consider how environmental regulation affects the demand for green skills in the US. We do this by regressing the skill constructs outlined above on environmental regulation stringency at the state-by-industry¹ level proxied by air emission intensity of toxic substances and pollutants covered by the Clean Air Act.²

Our main finding is that a lower level of emissions per capita (corresponding to stricter environmental regulation) increases demand for general green skills, although the effects are quite modest.³ To illustrate, a large 50% decrease in emissions increases industry greenness by just 4.2% of the inter-quartile range. Slightly larger effects are observed among more specific green skills, namely: a 50% reduction in emissions increases the importance of operations management by 12.6% and of science skills by 9% of the inter-quartile range. Operations management skills are especially important for coordinating different aspects of the production processes to achieve sustainability goals such as technical information, strategic problem-solving, and marketing strategies. These results are consistent with previous literature on the effects of ICT technology on the task content of occupations, since skills associated with abstract reasoning and problem-solving are strong candidates for the successful implementation of technological and organisational changes necessary to deal with the opportunities and the challenges of emission abatement (Autor et al 2003).

To further explore the consequences of environmental regulation on the composition of employment, we frame the analysis in the broader context of the prolonged decline in US manufacturing employment during the last two decades, which coincides with the rapid acceleration of China in the international trade arena. Similar to the argument that the relocation of unskilled-intensive processes to labour-abundant countries such as China pushes US firms to offset price competition by increasing output quality (Bloom et al 2014), we expect that more stringent environmental regulation adds to the ongoing trade effect and induces further shrinking of high-emission sectors. At the same time whether the combination of high exposure to trade and regulatory shocks amplifies the compositional effects found for trade by previous studies (e.g., Ng and Li 2013) is a matter of debate. Results confirm that import penetration tends to increase the demand of high skilled workers, especially occupations that are intensive in operation management skills. What is more, the joint compositional effects of environmental regulation and import penetration reinforce each other for both monitoring and operation management skills. Our analysis suggests that compositional changes due to employment contraction in sectors that are highly exposed to trade and regulation only partially drive the positive effect of environmental regulation on green skills. The positive effect observed for expanding sectors can be more safely attributed to technological and organisational changes affecting the demand for skills.

Implications

There are two main implications stemming from this work.

First, our empirically-driven selection of green skills allows the detection of skill gaps which can be used to compute measures of skill transferability from brown to green occupations, or to specify in even greater detail the types of general skills in high demand in specific sectors or sub-groups of green jobs (e.g., those related to renewable energy). With the exception of monitoring skills, the competencies that emerge from this exercise all have a strong analytic and technical content related to science and engineering disciplines that require heavy investments in formal education.

Second, our findings that emission reduction entails an increase in demand for scientists and engineers has important policy implications, with education emerging as a critical ingredient in the policy mix to promote sustainable economic growth. An increase in the supply of these skills would pin down the wages of engineers and scientists thus reducing the cost of adopting clean production methods as well as harmful economic consequences of environmental regulation.

References

Autor, D, F Levy and R Murnane (2003), “The skill content of recent technological change: An empirical exploration”, Quarterly Journal of Economics, 118(4): 1279-1333.

Berman, E and L Bui (2001), “Environmental regulation and labor demand: Evidence from the south coast air basin”, Journal of Public Economics, 79(2): 265-295.

Bloom, N, P Romer, S Terry and J Van Reenen (2014), “Trapped factors and China’s impact on global growth”, NBER Working Paper 19951.

Cedefop (2009), “Future skill needs for the green economy”, Office of the European Union.

Greenstone, M (2002), “The impacts of environmental regulations on industrial activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures”, Journal of Political Economy, 110(6): 1175-1219.

Lin, J (2011), “Technological adaptation cities, and new work”, Review of Economics and Statistics, 93(2): 554-574.

Lu, Y and T Ng (2013), “Import competition and skill content in US manufacturing industries”, Review of Economics and Statistics, 95(4): 1404–1417.

OECD/Cedefop (2014), “Greener skills and jobs”, OECD Green Growth Studies, OECD Publishing.

UNEP (2012), Measuring progress towards a green economy, United Nations Environment Programme Report.

Vona, F, G Marin, D Consoli and D Popp (2015), “Green skills”, NBER Working Paper 21116.

Footnotes

1 The focus is on polluting industries: manufacturing, utilities, extraction, and construction industries.

2Since the scale of green jobs and skills is still relatively small in US employment, we opt for an analysis at the sector-by-state level to maintain the maximum level of sectoral and occupation detail.

3 The effect of environmental regulation is conditional to industry and state dummies, the average plant size, the share of monitored plants. Our empirical strategy also accounts for endogeneity in environmental regulation.

This article is published in collaboration with VoxEU. Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Davide Consoli is a Research Fellow of the National Council of Scientific Research based at the institute INGENIO (CSIC-UPV) in Valencia. Giovanni Marin is Post-Doctoral Researcher at the Research Institute on Sustainable Economic Growth of the National Research Council of Italy (IRCrES-CNR) and visiting researcher at the French Economic Observatory (OFCE-SciencesPo). David Popp is Professor of Public Administration and International Affairs at the Maxwell School of Syracuse University, where he is a Senior Research Associate in the Center for Policy Research. Francesco Vona is senior Economist at the French Economic Observatory – Sciences Po (OFCE) and adjunct professor at SKEMA Business School and SciencesPo.

Image: A boy touches a 45-metre long wall lighted by colour rays. REUTERS/China Daily.