Inclusive innovation: towards a theory of inclusiveness transitions

The hypothetical trade-off between achieving ambitious environmental goals and keeping unemployment low is gaining importance in the recent political debate, where growing awareness about the urgency of environmental challenges is accompanied by massive changes in the labour markets due to unexpected exogenous events (e.g. the COVID-19 pandemic) and long-term structural changes (demographic change, automation and globalisation). In this chapter, we discuss the link between environmental policy and labour markets from both a theoretical and empirical viewpoint. Four main results emerge: (i) while in a static framework environmental policy should lead to job destruction, when considering dynamic innovative responses results are less clear-cut; (ii) the impact of environmental policy on labour markets is non-neutral and goes in favour of workers endowed with certain skills, leading to potentially adverse distributional impacts; (iii) a shortage of workers with specific skills could make the sustainable transition slower and more expensive than expected, calling for a coordinated action between environmental policy and training and educational policy.