NBER Paper Discusses Labor Effects of the Energy Transition

Major shocks in energy markets have led to serious negative economic impacts for regions with strong ties to the energy industry. National efforts to move the United States’ energy industry away from the use of fossil fuels is likely to cause similar effects, but history doesn’t have to repeat itself, according to a new working paper published by the National Bureau of Economic Research (NBER). Harvard professor Gordon H. Hanson, writing for the NBER, provides three key actions that the U.S. can take to mitigate the negative effects of such a transition based on case studies of similar events. According to Hanson, utilizing unemployment insurance (UI), expanding technical and vocational training tailored to new regional opportunities, and the use of place-based policies could help vulnerable communities in the transition. The U.S. has committed both domestically and internationally to take action to mitigate or reverse the effects of climate change. National plans, like the U.S. Long Term Strategy (LTS) that call for reductions in greenhouse gas emissions, increased use and development of renewable energy systems, and the development of a green economy are already materializing. Though national plans call for a complete overhaul of our energy industry over the next half century, the impacts on communities heavily dependent on certain forms of energy production, particularly fossil fuels, could be detrimental if nothing is done to aid in such transition. Unemployment insurance is a direct cash benefit paid to individuals who have lost their jobs through no fault of their own. The study suggests that, when fine-tuned to the local economic realities, UI can help those affected replace their lost income and “smooth their spending over time”, without causing any meaningful effects on aggregate employment. Fine tuning in this case would move the triggering mechanism from the state level to the local level as transition-caused unemployment is likely to occur in highly-specific labor markets. Unemployed individuals, whose previous occupation no longer exists, will need to develop new skills. Previous events have shown that labor market programs have a positive effect in helping unemployed individuals find new jobs, but are not as effective as they could be due to their “fragmented” and “decentralized” nature. Coordination among organizations and entities that provide programs to retrain the unemployed could allow for such programs to grow in size and reach more people. Place-based policies are “government efforts to enhance the economic performance of an area within its jurisdiction”, and are used widely by states, counties, and local municipalities across the country. However, the issue, according the author, is not enticing local governments to enact such policies, but figuring out which policies actually work. Well-funded federal agencies such as the Economic Development Administration, the Employment and Training Administration, and the Small Business Administration all have an “immediate opportunity” to analyze place-based policies and develop new programs, roadmaps, and best practices for communities. Economic shocks have proved devastating for energy-intensive communities throughout history. As the United States changes course in its energy policy, it is crucial to revisit history, learn, and adjust to best meet the needs of those affected.