Recap: New Economy Short Cut with OECD on Climate Policy and Jobs

The auto industry crisis in Germany gives an idea of what will happen if the transition to a climate-neutral economy goes wrong. In the “Employment Outlook” published this summer, OECD economists analyzed how regionally concentrated structural breaks and waves of redundancies can be prevented – a challenge that will also occupy the next German government.

Which regions and employees will be particularly affected by the transformation? And what measures could be taken to maximise the opportunities and avoid negative effects as far as possible? What role could the social partners play in this?

In our recent New Economy Short Cut² we talked about this with Jonas Fluchtmann, co-author of the OECD report, and with labor market expert Anke Hassel, who also covered this issue in a recent report.

Employment Effects of the Transformation

As Jonas Fluchtmann highlighted in his keynote speech, the net impact of the green transformation on aggregate employment is relatively modest (only 7% of workers are employed in the most emissions-intensive industries, which account for 80% of emissions). However, the effects of regionally concentrated job losses should not be underestimated. This is primarily due to the significant and long-lasting income losses, which are particularly high in the affected sectors. OECD analysis reveals that business-related waves of layoffs in these industries lead to income losses in Germany that are 16% higher compared to other sectors – with the OECD average even reaching 24%. This is largely attributable to the higher wage levels in industries undergoing structural transformation, which stem from historically high profitability and strong union representation. These factors increase adjustment costs, partly because of lower acceptance of and willingness to embrace transformation among affected workers.

Anke Hassel, in her presentation, emphasized the significant regional differences. When looking solely at the share of the heavy and automotive industries, there is a strong regional concentration in Central and Eastern Europe and also in the area around Braunschweig (left chart). However, this picture changes when alternative employment opportunities at the regional level are taken into account (right chart). The issue of limited job substitutability, as similar positions in related fields are also often eliminated, is particularly pronounced in Southern and Southeastern Europe. Furthermore, it becomes evident that countries and regions with relatively low investment in general skills and education are more heavily affected by structural transformation.

What measures are necessary for a successful structural transformation?

• Reduce adjustment costs: Instruments such as transfer companies can help make labor market adjustments more efficient.
• Strengthen income support systems: Affected workers should be (partially) compensated for their income losses.
• Promote activation measures: Retraining and further education can facilitate the transition into new professions.

According to Jonas Fluchtmann, training measures are particularly relevant for low-skilled workers, while higher-skilled individuals face fewer challenges in adapting.

For a successful structural transformation, proactive regional policies are crucial to addressing regional disparities. The EU cohesion policy can also play a key role in supporting disadvantaged regions and ensuring a socially equitable transition.