Skill and Spatial Mismatch in the Energy Transition

What labor market frictions prevent workers and communities from smoothly adjusting to local employment shocks? To what extent do investments in human capital address existing frictions? The large-scale transition away from fossil fuels imposes acute challenges for the workers employed in and communities built around carbon-intensive industries. Workers in legacy energy sectors (i.e., fossil fuels) tend to possess relatively low levels of educational attainment, and fossil fuels are spatially concentrated in distressed regions offering few alternative, high-paying employment opportunities, such that the energy transition threatens to exacerbate inequality along educational and regional dimensions. In a frictionless market, displaced workers could simply transition from one industry or labor market to another without signi?cant, long-run earnings losses or unemployment spells (Walker, 2013). However, workers in legacy energy sectors suffer large earnings and employment losses (Colmer et al., 2023a), and reallocation to other industries and other labor markets is quite rare (Curtis et al., 2023; Colmer et al., 2023b), suggesting that both skill and spatial mismatch may play important roles in preventing a smooth adjustment to the energy transition. The extent to which existing frictions can be addressed will likely have substantial implications for inclusive economic growth going forward.