Education and the Just Transition

Education and the Just Transition

In the next five years, automation will eliminate 85 million jobs and create 97 million new ones. That was the conclusion of the World Economic Forum’s latest “The Future of Jobs Report.” The projected net gain in jobs is of little comfort to those whose skills are no longer wanted. Reskilling requires an investment of time and money and social justice demands broad responsibility for providing a “just transition.”

Trade unions originated the idea of a just transition in the wake of mining jobs threatened by environmental protections in the late 20th century. Although the current transition to a low-carbon economy will be highly disruptive to the workforce, it pales by comparison to the accelerating displacement of workers due to technology. Fewer than 50,000 people work in coal mining in the U.S., while there are more than 3 million cashiers.

The concept of a just transition is most clearly defined by the International Labour Organization’s (ILO) 2015 guidelines. The basic goals of which are environmental sustainability along with social inclusion and decent work for all. The ILO’s guidelines are primarily aimed at governments, but business can also play a major role outside of managing the transition itself.

Companies can help enable their workforce to continue their education and skill training while working. Data from the OECD suggest that every dollar invested in post-secondary education yields an average benefit of $4 to $5. Yes, this fails to account for the fact that other variables, like natural abilities, account for some of the higher earnings of those with post-secondary learning. Still, Wolfe and Haveman suggest the annual financial return to the individual from investing in education is in the range of 6-9%.

And there is substantial evidence that education and training is associated with many hidden “non-market” or “non-financial” benefits. Riddell notes that the children of more educated parents are generally less costly for governments to educate, and their home lives are likely to be more stable. So education pays dividends over multiple generations. And the more educated worker is more likely to live a longer and healthier life, which benefits not only the individual and their family but also the need for the public to provide healthcare. The way that education improves health is still not well understood, but a causal connection has been established. Other research asserts that education reduces crime and increases civic participation, though the linkages are less clear.

According to Wolfe and Haveman, the non-financial benefits may be comparable in magnitude to the financial gains. Using recent data from the OECD, I guesstimate that the average benefit of post-secondary education is roughly twice the investment.

But a cost-benefit analysis undersells the social value of education provided by businesses. A relative utility approach paints a clearer (if less precise) picture. Every shareholder dollar redirected to employee education is effectively reducing the consumption utility of the shareholder and lifting the utility of employees. Since most stock is owned by the wealthiest 10% of households, this trade usually lifts the utility of society as a whole.

For educational assistance programs made available to all employees, I estimate that the utility gained by employees is roughly 8 to 14x the utility foregone by shareholders. The largest employers may have educational assistance programs and training budgets that run into the tens of millions of dollars — implying significant positive social impact.

Businesses are well placed to help direct educational efforts since they are guided by the demands of product and service markets. Educational assistance may be targeted to areas where businesses see a shortage of skills in the labor market — Amazon’s Career Choice program is one high-profile example.

Employer responsibility for fostering continuing education is heightened in countries where the tax code provides incentives for both businesses and their employees. In the U.S., businesses are able to deduct the costs of educational assistance programs up to $5,250 annually for each employee. And workers are able to receive this benefit tax free — making it easier for those with more limited savings to access education.

Socially responsible investors should encourage their portfolio companies to provide educational assistance programs as part of their benefits package. And companies should be encouraged to actively promote any educational benefits to their employees. The burden of a just transition will fall primarily on governments and households, but businesses can play an important role.

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