Alongside the transition to a climate neutral economy, Europe faces other transformative forces – or megatrends – that could drastically affect the economy and labour markets if not managed properly, writes Eliot Whittington.
Eliot Whittington is Director of the European Corporate Leaders Group.
Work is at the heart of our economy, and COVID-19 has shown the world that labour markets can be transformed in the blink of an eye.
The spread of the virus into a global pandemic has led to a healthcare crisis with tragic implications for thousands of people, forcing countries to adopt lockdown measures – closing schools, shops and factories. This has resulted in a sharp decline in economic activity and a steep increase in unemployment claims.
The full extent of the economic and social impacts will take years to play out, but already the IMF is forecasting the worst recession since the Great Depression, vastly exceeding the scale of the 2008 global financial crisis, and recent ILO estimates suggest ‘catastrophic losses’ for businesses around the world, with working hours expected to decline by 6.7% in the second quarter of 2020, equivalent to 195 million full-time workers globally and some 15 million full-time jobs in Europe.
But as terrible as the short-term impacts are, alongside great uncertainty of the longer-term effects of the pandemic, our future planning must also incorporate other challenges that risk leading us into even deeper problems in the long term.
At around the same time as the new coronavirus was emerging in Wuhan, the EU launched its Green Deal, setting a pathway for at €1 trillion investment over the next 10 years and a just transition to a prosperous climate neutral economy by 2050.
This transition will have significant impacts on the labour market across all sectors of the economy. It has the potential to create millions of new jobs in renewable energy, the circular economy and low carbon technologies. At the same time, some industries and sectors will contract, decline or disappear, resulting in employment losses.
Alongside the transition to a climate neutral economy, Europe will be impacted by other transformative forces – or megatrends – and their effects on the scale, competitiveness and stability of the European economy and labour markets over the next 30 years are likely to be substantial.
A new report from the European Corporate Leaders Group cites the results of a forthcoming modelling study analysing impacts of major megatrends on Europe’s labour market in the context of the continent’s transition to a low-carbon economy.
The findings show that effective, tailored decarbonisation policies can help build a European labour market that is more resilient to the future economic impacts expected from technological change, globalisation, demographic change and resource scarcity. In fact, economic modelling featured in the report suggests a best-case scenario can deliver positive employment projections – leading to around 1% employment growth.
We have seen with COVID-19 that economic impacts from radical change are rarely evenly distributed. Policymakers must play an essential role in ensuring that businesses, workers and sectors that are negatively impacted by the low carbon transition and other megatrends receive sufficient support though investment in reskilling, redeployment and economic diversification.
It is vital we do not consider the recovery plans from the present pandemic as a discrete strategy in response to a black swan event. The megatrends affecting our world, including climate change, have the ability to make disruption the new normal and scrambling to respond from scratch to each new crisis cannot be our game plan.
The research shows that with well-designed policies, Europe could maintain employment levels in the face of the combined impact of the megatrends, but without that strong policy response it could see job losses of up to nearly 10% by 2030 and 30% by 2050.
Policymakers have started to grasp the range and depth of actions they need to take, and the European Commission is trying to pull its Green Deal back into the room, but greater coherence still is needed.
We are moving rapidly and inexorably into a much more complex world and the COVID-19 crisis is offering us a sobering snapshot of a future we have both the knowledge and tools to temper substantially.