Unlocking the employment potential of Latin America’s Energy Transition

Michelle Hallack - David Lopez Soto

Michelle Hallack - David Lopez Soto

The energy transition is changing the dynamics of the global investment landscape and opening the door to new activities and business opportunities that will likely impact the sector’s labor market. Evidence from certain LAC countries suggests that for every million dollars invested in the energy sector’s emergent areas, between 7 and 49 new jobs are created.

To fully unlock the employment potential of the energy transition, we must delve deeper into the factors that drive this hiring process. An upcoming IDB study on the transformation of the energy sector’s labor market found that small and medium companies play an increasing role in job creation. Small- and medium-sized enterprises (SMEs) are delivering innovative energy services to new market niches and provide sustainable energy solutions that are already seeing commercial success.

 

Based on an IDB analysis of firm-level information from six different Latin American countries, the hiring rate is inversely related to the size of the company, in part because small companies may be younger or still in the growth phase. In this sense, we see a shift in labor market trends. Although big, traditional utilities were at the center of the energy sector historically, smaller energy service companies are becoming increasingly relevant. This indicates a growing potential for new entrants in the energy transition.

A lot has been said about the opportunity of the energy transition for economic recovery. However, the ability to create jobs efficiently depends on the labor market’s abilities and the skills required for the transition. On this subject, the firm-level analysis revealed that SMEs tend to rely less on internal training, emphasizing the role of policymakers in designing effective training and re-skilling policies.

 

To achieve Paris Agreement, the energy transition is essential but also an opportunity for LAC countries to position themselves strategically. The understanding of the labor market transformation is a key element to benefit most of the energy transition potential.

In 2020, the IDB surveyed the energy companies of Bolivia, Chile, and Uruguay and found that emerging firms from the energy transition showed the biggest potential for employment creation. In 2021, the Bank added companies from Panama, Costa Rica, and Mexico to gain insight into employment trends in size, gender, and education levels based on a more robust database. Brazil, the biggest energy market in LAC, will be added in 2022 to better analyze the tendencies of energy transition characteristics and set the basis for better policy design that unlocks employment and adds value to the region’s economy.

 


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Michelle Hallack - David Lopez Soto

Michelle Hallack - David Lopez Soto