RDP 2024-09: The ‘Clean Energy Transition’ and the Cost of Job Displacement in Energy-intensive Industries 5. Policy implications

While the clean energy transition is crucial for a sustainable future, it poses significant employment challenges, in part through significant and persistent job displacement costs in energy-supply and industrial-demand sectors. Strategic long-term planning can help to address the labour market challenges posed by the clean energy transition, yet some level of displacement is unavoidable. Consequently, developing and implementing comprehensive labour market policies that reduce the costs of job displacement is essential for assisting displaced workers in sectors and occupations at risk and ensuring transitions to new and emerging sectors and occupations, for example occupations in sectors relying on clean energy. However, it is also critical for securing public support for the clean energy transition (see OECD (2024_[1]) for a comprehensive overview of policy approaches).

Income support during periods of non-employment after displacement plays a central role in cushioning earnings losses after job loss. Unemployment insurance (UI) in particular serves as a crucial safety net, supporting consumption and allowing time for displaced workers to find suitable employment (OECD, 2023_[]). However, the effectiveness of UI depends on careful design to balance income security with the incentives for job search. In some countries, severance pay plays an important role in offsetting earnings losses following displacement, especially for workers with longer tenures that previously earned relatively high wages (OECD, 2018_[]). While early retirement schemes can in principle can mitigate adverse labour market outcomes by offering a swift transition to pensions, they negatively impact aggregate labour supply and public finances (OECD, 2018_[]), and are therefore not a strategically sound approach for the clean energy transition.

As a significant part of earnings losses following displacement in energy-intensive industries stems from a decline in re-employment wages, an additional avenue in supporting displaced workers is through in-work income supports, such as in-work benefits (see e.g. Immervoll and Pearson (2009_[])) and wage insurance schemes. The latter, which replaces a significant part of the differences to previous wages, has already shown to be a particularly effective tool to mitigate job displacement costs. In the United States, for example, it has led to faster re-employment and increased cumulative long-run earnings of trade-displaced workers, while paying for itself through reduced public expenditure on UI and increased tax receipts (Hyman, Kovak and Leive, 2023_[]; Hyman et al., 2021_[]). Whether such policies should be targeted to support workers specifically affected by the clean energy transition depends on the country context.

To support transition from declining sectors to new and emerging industries, which may require re- or upskilling, active labour market policies (ALMPs) and lifelong learning initiatives play a significant role, e.g. Causa et al (2024_[]). Public employment services are instrumental in this context, providing job search assistance and identifying relevant training opportunities based on systematic skills assessment and anticipation, ensuring workers can adapt to new job requirements in an evolving labour market (OECD, 2023_[]). Such approaches may be most effective when implemented as early intervention that offer training and job search advice already during notice periods and before effective job loss (OECD, 2018_[]).