The Labour Market Impacts of a Green Recovery
The COVID pandemic has plunged the global economy into the deepest recession since World War II. According to recent estimates by the International Monetary Fund (IMF), advanced economies saw a contraction in real GDP by 4.9% in 2020. At 5.5%, that drop was even steeper for Canada. As a result, employment decreased sharply across industries. In February 2020, total employment in Canada stood at just over 19 million. By the end of April that number had dropped by almost three million to just over 16 million employees. In Canada’s manufacturing sector alone, roughly 300,000 people lost their jobs. Over the following months, labour markets recovered slowly and about a year after the COVID-19 outbreak, many industries in Canada recovered from the steep employment losses. That said, some industries - especially accommodation and food services and information, culture and recreation are still below pre-pandemic employment levels.
In reacting to the recession caused by COVID-19, a number of governments are turning the crisis into an opportunity for a green recovery to drive sustainable and resilient economic growth. Estimates suggest that OECD member governments have committed more than USD $300 billion to a green recovery, which entails a deep reshaping of existing industries to meet climate change targets.
The Need for Action on Climate Change
According to the World Meteorological Organization (WMO), the past year was one of the three warmest years on record, rivalling 2016 for the top spot. In fact, the warmest six years since 1850 have all occurred since 2015 with 2016, 2019 and 2020 being the top three. As a result of global warming, the average global temperature in 2020 was around 1.2 °C above pre-industrial levels, spanning the period from 1850 to 1900.
In addition to rising temperatures, we are also witnessing an increase in greenhouse gas (GHG) concentration and rising sea levels. Extreme weather events, another indicator of climate change, have also been more frequent in recent years. The United States alone, for example, saw a total of 22 billion-dollar disasters just in 2020.
In Canada, annual average land temperature has increased by approximately 1.7°C since 1948. This increase is approximately double the global average level of warming, which means that Canada is warming twice as fast as the rest of the world. Due to latitude and configuration, northern Canada in particular is experiencing warming temperatures at three times that of the global average.
Higher temperatures to date have been accompanied by more frequent heatwaves and forest fires, changing precipitation patterns and increased flooding, reduced snow and ice cover, thawing permafrost and shrinking Arctic Sea ice, and other changes, all of which are impacting natural and human systems. These impacts include but are not limited to economic disruption, infrastructure destruction, interruptions in food, fuel and energy supply and increased incidence of crop, animal and human vector-borne diseases.
More drastically, warming of just a fraction of a degree is expected to result in catastrophic impacts on certain ecosystems. The unprecedented rate of warming in Canada has been projected to “collapse major agricultural industries, flood coastlines, and significantly increase the frequency of damaging extreme weather events”.
As socio-economic, health and environmental risks from climate change are becoming more pressing, it is evident that policy action on the issue cannot be delayed. It is not surprising that, in the wake of the COVID-19 pandemic, governments are exploring tenets of Green Recovery as part of systemic plans to address climate change.
Green Recovery and Labour Market Impacts
In the wake of these discussions, the automotive industry is one important industry under pressure, both from governments and consumers, to improve the environmental sustainability of the transportation sector. To date, 17 countries have announced 100% zero-emission vehicle targets or the phase-out of internal combustion engine vehicles through 2050. France was the first country to put this intention into law, with a 2040 timeframe. Regions like the State of California - which have traditionally led in this area and by proxy also set regulatory standards for Canada - are enacting new regulations on zero emission vehicles as well as for net zero emission buildings.
While the goals of this direction are necessary and laudable, investments into a greener auto industry will be widespread and disruptive - from changing skills demand, shifts in the supplier industry and changes in production processes and input factors, among other areas. This shift signifies key and critical workforce considerations to plan and prepare for.
With regard to skill requirements, we can expect to see increasing demand for high skilled workers trained in science, technology and mathematics (STEM) with a focus on information and communications technology (ICT). Additionally, workers with a background in data analysis and data science, process automation and industrial and production engineering will likely be in higher demand due to a switch to electrification.
Focusing on the automotive supply chain itself, a shift towards electrification increases the need for battery manufacturing facilities close to automotive production. This would require Western countries to significantly step up battery cell manufacturing. At present, the production of EV batteries is heavily concentrated in Asian countries, with China dominating the market. In 2020, China produced around 77% of lithium-ion batteries, followed by the US with 9% of global production, the rest of Asia with 8% and the EU with 6%. In light of this challenge, the EU launched the European Battery Alliance in 2017 to create a complete domestic battery value chain to drive the transition towards clean energy. For Canada, following a similar path could not only hasten this transition but also generate high-skilled manufacturing jobs in the country.
Further, as shown in the previous section, the production of EVs is in many aspects less complex and expected to use fewer materials. In combination, this will be reducing working hours and maintenance. As a result, some studies suggest that the production of EVs reduces labour hours by as much as 30% compared to the production of cars with an ICE.
The possibility to produce with fewer parts will also have an impact on parts suppliers, many of whom are small- and medium-sized enterprises (SMEs). In 2019, for example, there were around 1,045 motor vehicle parts manufacturers in Canada 70% of which had less than 100 employees. Similarly, Canada had around 635 motor vehicle body and trailer manufacturers of which around 90% had fewer than 100 employees.
Overall, the increased use of artificial intelligence, robotics, digital technology solutions combined with the switch to new materials and parts is likely to have negative employment effects on oil and gas production, design, manufacturing, marketing, accounting, repair and sales and retail sale of automotive fuel. In contrast, job gains can be expected in electricity generation, the manufacture of batteries and electrical parts and machinery as well as through the creation of a charging station infrastructure and data management and processing.
Policy Options
Given the impact of a Green Recovery on the labour market, the role of public policy in facilitating this shift is twofold. First, direct support is necessary for the development of a domestic EV supply chain - including a complete battery value chain. In this context, governments should also consider R&D investments to accelerate the deployment of a variety of EV technologies, including the recycling of critical minerals and the development of alternative battery technologies. This might, where necessary, include supply-side policies such as research and development funding, loan guarantees, and tax breaks for manufacturing as well as domestic manufacturing requirements for the procurement of public transit vehicles to increase production of electric buses in Canada.
The second aspect is on the change in skill requirements triggered by the electrification of the auto sector. As noted, an electrification of the auto sector is going to change skill demand towards higher skilled and STEM-educated workers. A crucial role for public policy in this context is to facilitate the transition of workers whose jobs might be displaced into alternative and emerging roles. To reduce frictions and enable smoother transitions the public sector should improve the provision of labour market information - especially with regard to skill requirements. Additionally, governments should work with private sector partners and employment service providers to improve access to training opportunities. Apart from the need to retrain some employees now, the pace of digitization and automation will also increase the requirements for lifelong learning which necessitates the creation of an appropriate training infrastructure. Providing sufficient opportunities for retraining and upskilling might pose a challenge especially for SMEs. Yet, as Ryerson’s Diversity Institute (2021) points out, existing regional clusters can help in the facilitation of training, knowledge and mediation of resources.
Advances in automation and digitization coupled with electrification also means that the auto sector will increasingly have to compete for talent with other industries - both at home and abroad - as digital skills are more transferable compared to the skills sets in traditional auto manufacturing. To broaden the talent base the sector should collaborate with governments and service providers to facilitate a faster integration of newcomers and an improved access of youth into technical training.
Endnotes
WMO. 2021. “2020 was one of three warmest years on record”, Press Release 15 January 2021. https://public.wmo.int/en/media/press-release/2020-was-one-of-three-warmest-years-record
Lindsey, Rebecca. 2021. Climate Change: Global Sea Level. Climate.gov News & Features. https://www.climate.gov/news-features/understanding-climate/climate-change-global-sea-level
Freedman, Andrew and Chris Mooney. 2020. “Earth’s carbon dioxide levels hit record high, despite coronavirus-related emissions drop”. The Washington Post, June 4, 2020.
WMO. 2021. “2020 was one of three warmest years on record”, Press Release 15 January 2021. https://public.wmo.int/en/media/press-release/2020-was-one-of-three-warmest-years-record
Canada’s Minister of Environment, Honourable Wilkinson, Globe 2020 Keynote
The Canada’s Changing Climate Report states that since 1948 annual average temperatures in Canada have increased by 1.7°C and 2.3°C in Northern Canada, whereas the average global temperature on Earth has increased by approximately 0.8°C since 1880 according to NASA.
https://www.theweathernetwork.com/ca/news/article/global-warming-driving-canadas-temperatures-up-at-twice-global-rate-climate-change-arctic-anomaly
IEA. 2020. Global EV Outlook 2020.
ILO. 2021. “The Future of Work in the Automotive Industry: The need to invest in people’s capabilities and decent and sustainable work”. Issues Paper for the Technical Meeting on the Future of Work in the Automotive Industry, Geneva, 15-19 February 2021.
BloombergNEF. 2020. Canada ranked 4th, US 6th in lithium-ion battery supply chain. Sept. 16, 2020. (https://www.mining.com/new-ranking-has-canada-4th-us-6th-in-lithium-ion-battery-supply-chain/).
S&P Global Market Intelligence. 2021.” Top electric vehicle markets dominate lithium-ion battery capacity growth” (https://www.spglobal.com/marketintelligence/en/news-insights/blog/top-electric-vehicle-markets-dominate-lithium-ion-battery-capacity-growth).
European Union. 2021. Internal Market, Industry, Entrepreneurship and SMEs, (https://ec.europa.eu/growth/industry/policy/european-battery-alliance_en).
Grzelewski, J. 2020. “In the Shift to EVs, Some Worry Workers Could Suffer”. The Detroit News, Nov. 3, 2020 (https://www.govtech.com/transportation/In-the-Shift-to-EVs-Some-Worry-Workers-Could-Suffer.html
Walter, K. et al. 2020. “Electric Vehicles Should Be a Win for American Workers”., Center for American Progress (https://www.americanprogress.org/issues/economy/reports/2020/09/23/489894/electric-vehicles-win-american-workers/)
Canadian Industry Statistics, Government of Canada: https://www.ic.gc.ca/app/scr/app/cis/search-recherche
ILO. 2021. “The Future of Work in the Automotive Industry: The need to invest in people’s capabilities and decent and sustainable work”. Issues Paper for the Technical Meeting on the Future of Work in the Automotive Industry, Geneva, 15-19 February 2021.
Walter, K., Higgins, T., Bhattacharyya, B., Wall, M., and R. Clifton. 2020. Electric Vehicles Should Be a Win for American Workers, Center for American Progress, Sept. 23, 2020.
Woynillowicz, D. 2020. Ford and Fiat Chrysler EV agreements help secure the future of Canada’s auto sector — but a shifting value chain, to parts and batteries, means there’s still more work to be done, Electric Autonomy Canada.
Labour Market Information Council (LMIC), “LMI Most Wanted by Canadians: Wages and Skills,” LMI Insights no. 8, February 2019, https://lmic-cimt.ca/wp-content/uploads/2019/02/LMI-Insights-No-8.pdf.
Bonen, T. and Oschinski, M. 2021. Mapping Canada’s Training Ecosystem: Much Needed and Long Overdue. IRPP Insights No. 34, January 2021.
Ryerson Diversity Institute. 2021. Industry 4.0, the Future of Work & Skills - Building Collective Resources for the Canadian Aerospace Industry.