How resource efficiency can also reduce unemployment

Businessman and worker talking next to conveyor belt in recycling plantPretty much everyone who is in favour of a new industry or development will claim that it creates jobs. Yesterday I typed “create thousands of jobs” into Google and got over 227,000 results back for this exact phrase. Everyone from broadband suppliers to airport operators, public authorities to large internet retailers are playing the jobs card. And, if you want to prevent something happening, saying it “threatens jobs” is also a popular tactic, according to another Google search.

Like many others, I am instinctively sceptical when I hear these claims. Add up all the jobs that could be created in those internet search results and you could probably eliminate Britain’s unemployment problem several times over.  But, unless we are all prepared to do many jobs, it is clear that the potential for job creation will be limited by the number of people who are currently without work but who want a job.

Many economists doubt that even this number of people will find work. They believe that unemployment cannot fall too low, for too long, without leading to rising inflation. As usual, economists have coined a clumsy name for this notion: the non-accelerating inflation rate of unemployment, or NAIRU.  Some think that the NAIRU could be as much as four to five per cent of the labour force (around 1.3-1.6 million people). And quite a few believe that market forces drive the unemployment rate to the NAIRU over time anyway. So jobs created by good projects – or destroyed by bad ones -will not make a jot of difference to the unemployment rate in the long run.

So where does this leave those who want to make the argument that the transition to a greener, more resource efficient economy can create jobs and lower unemployment? One approach is to reject mainstream economics and argue that there is no reason that unemployment could not fall much lower than the NAIRU.

Another is to stick with the mainstream view, but to try to see if there is some way that a more resource efficient economy might actually lower the NAIRU and reduce unemployment in a way that lasts. An economic study, by WRAP and Green Alliance, of the prospects for employment from greater resource efficiency, shows that this might just be the case.

Labour market mismatch is a cause of unemployment
A substantial share of unemployment in Britain is thought to be down to what is called ‘labour market mismatch’ ie some regions have much lower unemployment than others, and there is higher unemployment at some occupational skill levels.  This occupational dimension is thought to be getting worse, as technology may be removing the need for a lot of mid and lower level jobs.

If these mismatches can be overcome then there is a chance of lowering unemployment by bringing down the NAIRU.

We examined the evidence on the types of jobs created by a growing resource efficient, or circular, economy. They would be in businesses involved in keeping products and resources in use for as long as possible through recovery, reuse, repair, remanufacturing and recycling. They range from high skilled jobs,managing anaerobic digestion and remanufacturing of electronics, to relatively low skilled jobs, eg in textiles and plastics recycling.

More resource efficiency needs more labour
A distinguishing feature of the transition to a circular economy is that – in contrast with previous industrial transitions – it involves using resources more efficiently, but needs more labour to do so.

This growth in employment is likely to be felt across the country, benefiting occupational groups – such as the low skilled – who are most likely to be unemployed or those occupations where jobs are disappearing due to industrial change, such as mid-level, skilled workers.

Job creation that reduces unemployment in key areas
For this study we made some illustrative calculations about what the employment needs of a expanding  circular economy might mean for the labour market in Britain. We reckoned that continuing on the current development path, the circular economy might need another 205,000 jobs by 2030. One can’t know for certain whether the people who fill these jobs will currently be unemployed or will have an existing job. But we considered it a fair bet that growing circular economy businesses are much more likely to recruit from the existing stock of unemployed in regions where the dole queues are longer, or for occupations where there are plenty of unemployed people with the right experience.

Building this key assumption into our calculations, we found that the development of resource efficient business to 2030 could reduce unemployment by about 54,000 and offset around seven per cent of the expected decline in skilled employment over the next decade.  We also found that these figures could be twice as high if Britain embarked on a really transformational development of the circular economy.

Ambition is needed at EU level
No-one can claim that job creation on this scale would solve Britain’s labour market problems. But it does serve to demonstrate the positive and valuable contribution greater resource efficiency across the country could make to addressing them.

This is a good news story for the economy on two fronts: by better utilising scarce natural resources there is the potential to improve the use of vital labour resources, creating net jobs. This is all the more reason to actively champion a high level of ambition in the current renegotiation of the EU’s circular economy package. Without it we could end up with no new policy drivers for investment and a missed opportunity for both resource efficiency and the labour market.

@julianbmorgan

See our infographic summarising the results of this research

Employment and the circular economy, by Julian Morgan and Peter Mitchell (Green Alliance, January 2015) (summary report)
Opportunities to tackle the UK’s labour market challenges through growth in the circular economy, by Julian Morgan and Peter Mitchell (Green Alliance, January 2015) (technical report)

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