The shrinking pie beyond the bluster

All the boom and bluster about the carbon tax fails to address the prospects for a dramatic reconstruction of Australia’s labour market and the way in which leading companies will do business in an inevitable low-carbon economy.

The sky hasn’t fallen in. Whyalla is still a steel town, coal mines are growing (not slowing) and prices are hardly moving. Our political leaders continue to rant slogans but fail to bring the nation with them on the journey into the 21^st century.

The real issue is not the level of emissions that Australia will cut or produce, but the impact upon jobs, real wages and the way we all work for the rest of this century. The key to management of this issue is the extent that additional public revenue generated by carbon taxes or an emission-trading scheme can be recycled so as to prevent wage earners from bearing the burden of the cost of mitigation policies.

Just out is the final report from the Organisation for Economic Cooperation and Development (OECD), The jobs potential of a shift towards a low-carbon economy. It starts with this statement:

“It is now widely recognised that it is essential to decouple economic growth from unsustainable environmental pressures, such as those leading to global climate change, and that a successful transition towards a low-carbon economy will necessarily reshape the labour market.”

Contrary to the best hopes of the Greens, the findings show that employment in many strategic green sectors, such as renewable energy, represents a very small share of total employment. The angst of labour leaders about future fossil fuel and agriculture projects is born out by findings that unionised labour market jobs are most under threat and that new high-value, highly-skilled jobs are unlikely to be available to less mobile, older family members in traditional industries.

Even when it is assumed that the labour market will adjust to the shift to a cleaner, greener business environment, with full flexibility beyond that which is present in the Australian economy, policies that significantly reduce greenhouse gas emissions depress real GDP, real wages and aggregate living standards.

The percentage fall in wages is larger than the fall in GDP, indicating a risk that workers will bear a disproportionate share of the costs of the transitions if the compensation policies that have been introduced by the Gillard government and due to be cancelled by an Abbott government are not maintained.

The final report for the European Commission DG Employment includes contributions from Austria, Canada, Denmark, Korea and Japan to provide guidance for how best labour market and skill development policy can contribute to a fast, efficient and fair transition to a low carbon and resource-efficient economy.

Attention is devoted to the potential contributions of both general labour market and educational policies, which provide the broad framework conditions determining the structural adjustment capacity of the labour market, and measures that are specifically targeted at “greening” the labour market.

These include public training programs for green jobs and the implementation of green-specific measures and types of initiatives that are being taken up around the globe. What is significant here is that there are likely to be reductions in real wages and aggregate living standards evaluated in terms of the consumption of marketed goods and services.

The findings highlight two key differences between the structural change associated with green growth and that associated with the ICT revolution and the deepening of globalisation.

A first difference is that the two earlier drivers of structural change expanded the size of the “economic pie”, whereas green growth policies shrink the pie in the sense that they impose extra costs on producers, when the resulting environmental benefits generally do not generate additional sales revenue.

A second particularity of structural changes associated with green growth is that it is driven largely by government policies, such as the climate change mitigation policies and their future policy choices are subject to great uncertainty.

Leading companies will make the most of the shift by investing in innovation and staff training to capture a seat in the low-carbon economy with firm-level eco-innovation that increases labour market flexibility, with incremental shifts towards global marketing and service industries.