Skill and spatial mismatches for sustainable development in Brazil

Abstract: Structural change is necessary for all countries transitioning to a more environmentally sustainable economy, but what are the likely impacts on workers? Studies often find that green transition scenarios result in net positive job creation numbers overall but rarely provide insights into the more granular dynamics of the labour market. This paper combines a dynamic labour market simulation model with development scenarios focused on agriculture and green manufacturing. We study how, within the context of a green transition, productivity shifts in different sectors and regions, with differing environmental impacts, may affect and be constrained by the labour market in Brazil. By accounting for labour market frictions associated with skill and spatial mismatches, we find that productivity shocks, if not well managed, can exacerbate inequality. Agricultural workers tend to be the most negatively affected as they are less occupationally and geographically mobile. Our results highlight the importance of well-targeted labour market policies to ensure the green transition is just and equitable.