Green Stimulus: Balancing Immediate Assistance, Future Resilience, and a Just Transition

August 26, 2020

This post is part of Smart Prosperity Institute’s Smart Stimulus Project and supports the work of the Task Force for a Resilient Recovery. Want to receive our latest analysis and insights? Sign up for our monthly updates here.

Most COVID-19 economic recovery plans across the world include some form of green stimulus to drive a more sustainable recovery. Two recent Smart Prosperity Institute working papers--focused on the employment impact of green fiscal push and the role of skills for a resilient recovery--show that these stimulus packages can have important implications for labour markets, depending on the extent to which occupations in the targeted industries require green skills. Importantly, they found that green stimulus was most effective in areas where workers had the skills necessary to work in green jobs. Using recently released data from the Labour Force Survey, this post explores some of these implications for the Canadian labour market.

Comparing employment in Canada in April and February 2020 using the Labour Force Survey shows that occupations in sales and services (such as retail salespersons, food counter attendants, cashiers, and childhood educators) were hardest hit by COVID-19, in terms of absolute decline in both employment and hours of employment. Within industry, the greatest employment decline occurred in specialty trade contracting, machinery manufacturing, food and beverage stores, real estate, and motor vehicle dealers. A further category of occupations that is important to consider are those that are more at-risk of COVID-19 infection, namely those with low capacity to work from home and a high level of physical proximity. I used “Working-from-Home” measures from Dingel and Neiman (2020) with a physical proximity index from the O*NET dataset to show that the most risky occupations in Canada are restaurant and food service managers, medical administrative assistants, registered nurses and registered psychiatric nurses, general practitioners and family physicians.

Knowing that it is important to provide funding programs that match the skills workers already have, to what extent would these occupations benefit from a green stimulus? Using the O*NET dataset and the methodology proposed by Vona et al. (2018) to measure the green skills and tasks required in each job reveals that the above-mentioned occupations do not have a high share of green tasks or high importance of green skills. Thus, it appears that neither the jobs that experienced the highest employment decline, nor the ones at higher risk of COVID-19 infection will significantly benefit from a green stimulus.

So who does benefit from a green stimulus? Occupations with higher shares of green tasks (like utility managers, maintenance labourers, applied science researchers, and conservation officers) would benefit most significantly, as well as occupations with a higher importance placed on green skills (like civil engineers, architects, and engineering managers). However, these occupations also have higher working-from-home capability and less need for physical proximity compared to other jobs. Therefore, by providing support for greener jobs, green stimulus can help the economy towards a smoother transition to more resilient post-pandemic workplaces. This essential role of green stimulus in shaping a more resilient workplace for the future, versus the short-term priority of assistance to other sectors--which might not directly benefit from a green stimulus--is one of the main trade-offs in designing recovery policies.

In addition, wage distribution data from the Labour Force Survey shows that workers with jobs that have a higher importance of green skills typically have higher wage and educational levels compared to others. Therefore, since green stimulus might leave behind already lower-paid employees with non-green skills, recovery plans should consider the distributional effects of green stimulus as well.

Finally, Canadian occupational projections show that “brown” occupations with the highest demand growth between 2020 and 2028 are in chemical product manufacturing, food and beverage processing, air, rail and truck transportation, mineral and metal processing, and drilling supervisory roles in mining. These occupations have a relatively high green skills importance index and can benefit from a green stimulus. Brown occupations with the lowest projected future demand growth are miners, farmers, wood, paper and pulp mill machine operators, machine operators in food and beverage processing, and seafood plants, all of which have low green skills importance. Vona et al. (2018) have previously shown that the cost of job reallocation is proportional to the skill distance between jobs. Since the skill gap for these low-demand brown occupations is higher, training is expected to be more important for these jobs in order to reduce the transition costs.

Overall, the limited effect of green stimulus on sectors that need immediate assistance in the short-term stabilization period should not undermine its crucial role in long-term recovery. Green stimulus might not significantly help the sectors that were hit the most by COVID-19, but it can help promote a workplace more resilient to future pandemics. This is mainly because greener occupations have lower physical proximity and higher work-from-home capability. In addition, with a high presence of green engineering and technical skills in provinces such as Alberta and Saskatchewan, these provinces already have great potential for such a transition and can benefit from a green stimulus package. Investing in training programs that can facilitate this transition for employees who face low future demand will prove critical in the years ahead. In resource-based provinces, such training programs might be a smarter use of taxpayers’ money compared to costly projects such as the Trans Mountain pipeline expansion, given the bleak outlook of the future world oil demand.