Wages in the Green Transition

Paper abstract

This paper explores the structure and evolution of wages in the green transition. Our analysis uses unique data for Germany which allows us to identify both green and brown tasks at a very disaggregate level, and to use worker-level administrative panel data. First, we provide evidence that both occupations with many “brown”, environment-harmful, tasks and those with many “green”, environment-friendly, tasks on average pay lower wages than occupations with only “white”, environmentally neutral, tasks. Zooming in on differences within narrow occupation cells, we find that occupations with a greener task profile pay higher wages than occupations with a less green task profile. Second, we investigate the reasons why green wages are not higher and are also not rising strongly, despite increasing labour demand for green skills. Using a decomposition analysis, we find that composition effects play an important role in this context. Third, workers in some occupations with a brown task profile experience lower wage growth over time and are thus at risk of welfare losses. However, these losses can be mitigated by occupational mobility. Overall, our finding of a positive green wage premium within narrow occupation cells indicates that workers who move to occupations with a generally similar task profile have an incentive to move to occupations with a relatively green task profile. However, our results also imply a risk that the green transition may increase labour-market inequality.

Study by:

• Ronald Bachmann (RWI – Leipniz Institute for Economic Research, Heinrich Heine University Düsseldorf),
• Christina Vonnahme (RWI and Westphalian University of Applied Sciences) and
• Jessica Wiest (Institute for Employment Research IAB)