Shifting to green energy is necessary for the planet, but the change will create economic winners and losers. As a hub for green tech innovation with relatively little exposure to fossil fuel-intensive industries, Massachusetts is likely to benefit. But the green energy transition nationwide represents a direct threat to the nearly 2 million workers and their communities that rely on oil, gas, and coal for their livelihoods. For these places, a rapid energy transition could be economically disastrous. Policymakers must act now to blunt the painful consequences of concentrated job loss by being prepared to offer much more help to workers who are affected by mass layoffs. State and local governments must also dramatically scale up high-quality programs to help displaced workers retrain for a green economy.
While some states that rely most on oil (Texas) and natural gas (Texas, California, Pennsylvania) are also benefitting from a surge in renewable sector job growth, individual workers may not have easily transferable skills.
Regional economies fare poorly when their core industries undergo rapid decline. Manufacturing job loss due to globalization is a case in point. In the early 2000s, open trade agreements allowed imported goods from China to flood US markets. While American consumers benefited from cheaper goods, import competition caused a wave of closures at US factories. Workers displaced by trade either found new jobs in other sectors or left their communities for opportunities elsewhere. Local employment rates, worker earnings, and household incomes all plunged after the China trade shock hit and stayed depressed for decades after. Worse, economic decline begat social decline. Affected communities saw fewer families form, more children raised in poverty, and higher mortality from drug and alcohol abuse. Government policy did little to help workers hurt by globalization, beyond providing Social Security and Medicare to retirees.
The decline of coal offers another preview of the local economic fallout from the energy transition. Its storyline is no less disheartening than the aftermath of globalization. The coal industry has seen two major rounds of mine closures, first in the 1980s, when oil prices fell from their 1970s highs and dragged down the price of coal, and again after 2010, when fracking made natural gas cheap and caused coal-fired power plants to shut down. Here too, the consequence of localized large-scale job loss was protracted economic misery. Joblessness rose, earnings fell, and Medicare and Medicaid were the only government programs that provided substantial help. The collapse of coal left communities that were older, sicker, and poorer than they’d been before.
When it comes to the energy transition, policymakers have a chance to get things right and to avoid the painful consequences of locally concentrated job loss. In a paper written for the Aspen Economic Strategy Group, I lay out two major policy changes that are needed to accomplish this task. First, policymakers must provide much more help to workers in the immediate aftermath of mass layoffs. During the COVID-19 pandemic and the earlier Great Recession, the federal government responded to sharp increases in national joblessness by temporarily making unemployment insurance benefits more generous and longer lasting. These extra payments put money in the pockets of the newly jobless, without any adverse consequences for the later economic recovery. This same principle should be applied at the regional level by tuning unemployment insurance benefits to the state of the local economy rather than the national economy. When joblessness spikes in regions undergoing mass layoffs — as occurred during the China trade shock and the decline of coal — the government should both increase the value of unemployment benefits and extend their duration beyond the standard 26 weeks.
The second needed policy change is for state and local governments to work more effectively with employers to help displaced workers retrain for a green economy. When a region’s core industries contract suddenly, large numbers of workers need to acquire skills for new occupations. Research shows that few workers without a college degree leave their communities when they lose their jobs. Unless displaced workers find new jobs locally, they may join the ranks of the long-run jobless.
Community colleges are on the front lines of worker reskilling. Many provide excellent vocational and technical training through certificate programs in health care, information technology, machinery repair, and other occupations that pay decent wages. The best programs, as documented by the nonprofit MDRC, are ones in which employers and community groups help community colleges design training to target specific sectors and ensure that workers receive the career counseling and other wrap-around services they need to succeed on the job. But in many distressed economic regions these programs are either absent or operating at too small a scale. Worker training is effective. It needs to be available where it is needed.
Just as in 1980, when economists did not see the decline of coal coming, economists in 1990 did not see the China trade shock on the horizon. Although in retrospect it seems obvious that these events would have large, concentrated, and negative impacts on exposed local labor markets, few researchers or policy makers foresaw them. The energy transition, however, is a shock foretold. Policymakers have a keen sense of which industries may see reduced employment, which local labor markets may be most exposed to the resulting job loss, and which existing policies have worked poorly in addressing past disruptions. This time, they have the opportunity to get things right.
Gordon Hanson is a professor in urban policy at the Harvard Kennedy School of Government. On Feb. 2, he will discuss his paper on the labor market impact of the energy transition with John Podesta, White House senior adviser to the president for clean energy innovation and implementation.