Cars and the Green Transition: Challenges and Opportunities for European Workers

IMF Working Papers, June 2, 2023

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Reducing transport sector emissions is an important pillar of the green transition.
The transition to electric vehicles (EV) portends major changes in vehicle manufacturing activity, affecting livelihoods in Europe.
The paper uses heterogeneity across European countries in the speed of transition to EV production and variation in sectoral and regional exposure to the automotive sector to provide early evidence on labor market implications.
Key high-level conclusion: the transformation of the auto sector is already having an adverse impact on employment in the affected sectors and regions, which can be expected to grow at least in the near term.

The transformation of the auto sector is already having an adverse impact on employment in affected sectors and regions.
This adverse employment impact can be expected to grow at least in the near term.
Many of the affected workers will be able to retire.
Workers who will have to transition to new “greener” jobs have a fair chance to do so when compared to other workers in the manufacturing sector.
Active labor market policies, specifically training, can help reduce the adjustment costs for affected workers.

Exploits heterogeneity across European countries in:
- Speed of transition to EV production.
- Sectoral and regional exposure to the automotive sector.
Provides early evidence of labor market implications stemming from these cross-country and cross-regional differences.

Active labor market policies matter: training programs can help lower adjustment costs for workers affected by the EV transition.
Policy focus should include facilitating transitions to “greener” jobs for manufacturing workers, alongside consideration of retirement pathways for eligible workers.
Anticipate growing labor market adjustment needs in the near term due to ongoing transformation of the auto sector.