Association for Public Policy Analysis & Management

The effect of environmental policy on employment is still hotly debated. Environmental advocates argue that stronger environmental policies create high-paying “green jobs”, while critics point to the job losses that they are sure will follow. Empirical evidence of environmental regulation’s effect on employment is mixed, but recent studies show that the employment effects of environmental regulation vary by industry. This variation raises important questions about the distributional effects of any environmental regulation, such as new low-carbon policies. These policies will change the mix of jobs, and thus change the types of skills workers need for employment. Even if the net effect on employment is small, there may be particular types of workers whose skills are no longer demanded in a green economy, and thus face additional challenges transitioning to new employment.

In Vona et al. (2018), we use data from the U.S. Department of Labor’s O*NET database to identify the skills demanded in occupations expected to be prominent in a green economy, which we label as Green General Skills. We show that Green General Skills become more important as environmental regulations are strengthened. These data allow us to compare the skill requirements of “green” jobs to those in higher polluting “brown” jobs where employment is likely to fall in a greener economy. In many cases, the skills used in each are comparable. However, in some sectors, such as energy extraction workers, the skills required for occupations likely to be affected by environmental regulation differ from those demanded by comparable green jobs.

In this paper, we ask whether government spending can facilitate the transition to new employment for workers displaced by environmental regulation. Using data on U.S. “green” stimulus spending in response to the Great Recession, we look at both the overall effect of such spending on employment and ask whether green stimulus spending was less effective in areas where the existing workforce lacked the skills demanded by green jobs. We regress changes in employment across states and metropolitan areas on a set of variables expected to affect employment, including green stimulus spending. Interacting green stimulus spending with a measure of the existing importance of green skills in the local economy before the recession (e.g. in 2006) reveals whether the employment stimulus effect of promoting a green economy is greater in areas with the skills needed for such work. We allow for different effects from direct green spending programs, such as funding for energy efficiency retrofits, and from training programs designed to prepare workers for the green economy, so as to provide guidance on the types of policies that may ease the transition for workers who lose their jobs due to environmental regulation. While we use this long-difference model to address potential regional fixed effects that may affect stimulus spending, our current work also considers possible instrumental variables related to funding decisions to address endogeneity of stimulus spending.