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Employment Impacts of Energy Efficiency Investment – Discussion Paper

Environmental benefits from programmes promoting energy efficiency are already well known and documented. Employment generation is another aspect of sustainable development that is positive side effect of many of these types of programmes.

Energy efficiency programmes generate employment in many different sectors, which will be discussed in this briefing. The direct creation of jobs will also have a knock-on effect in the economy. However, such programmes may also reduce job opportunities in other sectors.

Direct jobs

Three general categories of jobs are affected by an energy efficiency programme. Firstly, the work created in the administrating body, such as a government agency or a public electricity supplier – these jobs will include project development, marketing, management of installation schemes, telephone advice, administration of the scheme, monitoring of schemes carried out and the use of financial and information technology services.

The second category relates to the work undertaken by the installers of the energy saving measures and the manufacturers who supply these installers with the energy efficiency materials.

Thirdly, the local authority, or other stockholder whose properties are being improved by the programme, will also have extra work. This will include administration, data collection, tendering of contracts and overseeing the results. These are highly unlikely to be new jobs however, but are more likely to involve a reallocation of time within the authority, as the spending is fixed in a given year.

Indirect jobs

Employment will be increased, above the level calculated for the direct jobs, in two ways. The first is the linkage effect, where an increase in employment in the installation business, for example, leads to other employment being created in supporting industries, such as suppliers of goods and services used by the installer firms.

Secondly there is the multiplier effect. This is a result of spending from those newly employed and also from those who have saved money by having reduced fuel bills as a result of the energy saving measures installed. This increase in spending boosts the economy and generates further jobs.

The UK Treasury does not accept that there is a national multiplier effect in general, as it believes that the money used would always have been spent elsewhere in the economy, leading to the same overall investment. It does, however, use a figure for a local multiplier effect – that is, it believes that employment in one area can be boosted at the expense of somewhere else.

The value used for this indirect job creation effect is a subject of much contention. Previous estimates have been as high as three additional jobs created for every one direct job, more conservative ones have been 0.4 (e.g. used previously by the Department for Education and Employment (DfEE) and by ACE). New evidence in research for the DfEE (DfEE, 1996, The impact of redundancies on local labour markets and the post redundancy experience, Research Studies RS23, Department for Education and Employment) shows that this value may be even lower.

The value of the local multiplier is dependent upon a number of factors, and can be calculated using a set of parameters as identified by DfEE (ibid). These include: the current rate of personal taxation allowance; the marginal rate of deductions for those in employment compared to those not in employment; the marginal propensity to consume; the propensity to purchase goods and services from outside the local economy; and the proportion of firm turnover accounted for by wages.

Using these parameters, a figure is obtained for the multiplier and linkage effect. The calculations by the DfEE give a value of 0.04 for the newly employed and when the supplier effect is included this gives 0.17 in total – i.e. for every 100 direct jobs created, a further 17 will be created indirectly.

Negative Effects

The likely kWh loss to the supply industry from any programme promoting energy efficiency is likely to be far less than the predicted growth in electricity use. Also, because only 50% of distribution costs and 25% of supply costs are related to volume of sales, the actual loss in profit will be a far smaller proportion of the industry’s turnover. The effect of the restructuring of the industry since privatisation has already led to huge jobs losses and the industry in the UK is now highly efficient in terms of number of people employed per unit of electricity sold. It is doubtful that any job losses will occur as the labour required in the supply industry has little to do with the number of kWhs supplied and it is thought that the figure is likely to be zero (personal correspondence with NORWEB’s Energy Efficiency Manager).

There may also be savings in time for landlords of social housing, after the high initial work load arising from implementing the programme. The advantages are that the maintenance costs are reduced – such as the need for anti-condensation measures, the replacement of rotting windows and redecoration. Management costs are also reduced, including fewer complaints to deal with, fewer transfer requests and fewer empty properties. In case studies carried out by the then DoE (now DETR)(see for example: Energy Efficiency Office, 1995, Good Practice Guide 21, ‘Benefits to the landlord of energy efficient housing – A guide for Local Authority and Housing Association Landlords’, Department of the Environment, HMSO, London), job losses did not occur, the free time was spent more productively on other activities and the stock holders reported higher job satisfaction and staff morale because the tenants were more satisfied.

Natural rate of Unemployment

If more jobs are created through a programme such as this, jobs in general become more secure and demands for wage increases start as workers exploit their scarcity. When this happens, jobs are cut and people are made redundant as employers want to keep their costs down. This is the cause of the natural unemployment rate. When this level is attained, all the unemployed are ‘voluntarily’ so – all those who wish to have a job at the going wage do so. As the UK is currently well above the natural rate of unemployment, this factor can be ignored.

The fact that long term unemployed are likely to be involved in such a programme means that the natural unemployment pressures are unimportant anyway. These people do not have an impact on the labour market as they are not in a position to bargain for wages. The short term unemployed, however, do affect wages as they are available and skilled and are in that sense active in the job market. Involving the long term unemployed also has benefits for the economy and the community in terms of reducing the social costs of unemployment (for example, by reducing the health effects associated with the stress of long-term unemployment).

Free Ridership

The subsidisation of people who would have spent money anyway (free riders) could be quite high for energy efficiency programmes. However, many measures in programmes such as the Home Energy Efficiency Scheme (HEES) and Standards of Performance programme (SoP) are given to people receiving passport benefits who could absolutely not have afforded the measures without subsidies. This means that the level of free-ridership will be far less than expected. Even in the higher income groups it is unlikely that many of the measures would have been undertaken due to the current lack of knowledge and understanding of energy efficiency benefits. This can be illustrated by the fact that the level of uptake of cavity wall insulation in recent years has only increased by 1% per year in owner occupier homes (Building Research Establishment, 1994, ‘Domestic Energy Fact File: Owner Occupier Homes’), but in one SoP scheme, the level of uptake was between 14% and 18% in the same sector, suggesting that the majority of these would not have been carried out were it not for the scheme.

Displacement effects are also a problem in programmes of this nature. These may occur when firms not participating in the programme fail to win contracts they might otherwise have secured. Again this effect is lowered because of the fact that most of the measures implemented would not otherwise have been undertaken, so other work is not reduced as much as may be expected.

The DfEE’s view was that there may be net zero employment effect overall because the £1 would have been spent elsewhere. However, this does not take into account the fact that energy efficiency programmes invest in a particularly labour-intensive sector of the economy and would probably create more jobs than elsewhere in the economy.

Benefits

The benefits of employment can be calculated by the fact that the Treasury gains approximately £2,039 – £8,473 for each job created for a long term unemployed person (in terms of reduced unemployment benefits, social security costs and increased tax revenue) (Joseph Rowntree Foundation, 1997, ‘Bridges from benefit to work, A review’).

Qualitative aspects of this employment are at least equally as significant as the quantified benefits – the fact that the work is suitable for the long-term unemployed is an important consideration in local planning. There are social advantages of this type of employment and training – work on environmental schemes incorporates the important aspect of encouraging community development.

The experience of the programmes already carried out can be used to develop programmes using money from a variety of sources. Government funding set aside for employment programmes maybe one source of money, as it appears that such use of money would result in an overall benefit to the economy, in addition to the social and environmental benefits.

If future schemes can be designed to incorporate job opportunities for the long-term unemployed, the labour opportunities generated by the schemes is far more likely to have a permanent effect on employment levels; supply-side adjustments in the labour market which might act to offset initial employment gains are far less likely if the new jobs are taken by the long-term unemployed.

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