The greening of the European automotive industry and its labor effects: an empirical analysis

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Abstract:

The automotive industry is experiencing two huge transformations, namely electrification and digitalization (Lüthje, 2021; Wittmann, 2017), which represents the major technological trends shaping the present and the future of this industrial sector, not only in terms of production and sales, but also with relevant environmental and labor implications.
While the impact of the automation on auto employment has a long story, described by well-documented dynamics (Acemoglu and Restrepo, 2018) and trends (Isac et al, 2020; Pardi, 2019), electrification is the most radical transformative process undergoing in the automotive industry, posing the greatest challenges and concerns in terms of labor perspectives.
This holds true especially in Europe, where the automobile industry is challenged by an ambitious EU environmental regulation (EU, 2023), requiring the phase-out of the internal combustion engine vehicles (ICEV) by 2035, whose consequences on the European automotive ecosystem are still controversial.
According to many industry statements and studies, the electric shift will radically reduce the number of employees, especially along the powertrain supply chain, whose stakeholders call for a “mixed technology approach” and a strong policy support to maintain jobs while creating added value (CLEPA, 2021; 2023). However, electrification is also expected to trigger the creation and expansion of new industrial ecosystems, where the loss of ‘traditional jobs’ is supposed to be offset by the rapid diffusion of “green” ones (ILO, 2020).
Thus, the rising “job-vs-environment dilemma” within the automotive industry has raised growing attention among scholars in the social sciences, where an upsurging strand of studies investigates, mainly theoretically and through case studies, the opportunities and the barriers to a socio-ecological transformation (Pichler et al, 2021a; Pichler et al, 2021b) and a ‘just’ transition (Galgòczi, 2020) in the automobile sector.
Furthermore, a relevant number of economic researches empirically investigate the electrification’s labor effects, providing contrasting evidence and scenarios. For instance, Bauer et al. (2018) finds that BEVs are less labor intensive than ICEVs, while Kupper et al. (2020) observes that the labor requirements for BEVs and ICEVs are substantially comparable since the value added in automotive manufacturing just shifts from OEMs to tier one suppliers, and Cotterman et al (2022) reveals that electrification may lead to more jobs in powertrain manufacturing, at least in the short to medium term.
Since electrification is a process that in EU is accelerating and gaining momentum only in the most recent years (Bridge and Faigen, 2022), most of the abovementioned studies are predictive. However, the greening of the automotive industry has a long and multifaceted story (Calabrese, 2016) and its past labor dynamics offer an interesting subject, which has been little investigated. To our knowledge, in fact, no study has provided an ex-post assessment of the labor effect of the greening process of the European automotive industry yet, despite its potentiality for policy and industrial advice.
Following the way paved by Kosz (1997), Pichl (1997) and Pfeiffer and Rennings (2001) and inspired by the seminal work of Rennings et al. (2004), which performed the first econometric analysis assessing the labor effects of incremental vs radical eco-innovations, the goal of the present study is to provide a first assessment of the extent to which different green technological patterns in the auto industry have impacted labor and its productivity in OEMs and auto suppliers, using a sample of 20 European countries.

The study relies on a balanced panel composed of country-level data between 1995 to 2018. Primarily, the dataset encompasses OECD data on the employment and labor productivity levels in the OEMs and the suppliers of auto equipment, and the number of patents related to the three main technological areas of green innovation for the auto industry, namely ICEVs, HEVs and BEVs, whose relevance for the greening of the auto industry has been vastly proved in the literature (Aghion et al, 2015; Calabrese, 2016; Phirouzabadi et al, 2020; Novaresio & Patrucco, 2022). Moreover, we include information on factors affecting both labor and innovation dynamics along the automotive supply chain, such as the expenditures in R&D activities, auto exports and imports, car sales and wages, in both OEMs and auto suppliers.
The empirical strategy is based upon a preliminary graphical analysis inspecting the evolution of labor and eco-innovations in EU, followed by regressions with entity and time fixed effects, relating the abovementioned three categories of green patents with labor and labor productivity, while controlling for possible co-founding factors at industry and country level.

Our preliminary exploratory analysis highlights that while average employment in EU OEMs has been substantially stable until the dramatic drop in 2010, followed by a rapid recovery, the workforce in EU auto suppliers has experienced a slow, but steady decline. On the other hand, auto green patents show increasing average trends in all three categories over time, with BEVs displaying the most impressive growth pattern and peak in the last years.
The preliminary results of our econometric analysis reveal that while eco-innovations related to HEVs and BEVs show a statistically significant negative association with labor levels in the OEMs, the production of BEVs-related technologies has a statistically significant positive effect on labor among producers of auto equipment, confirming the hypothesis of a labor shift from the OEMs to the suppliers’ ecosystem (e.g. battery), postulated by Kupper et al (2020). The study on labor productivity reveals that innovations related to the electrification process have a positive effect on the OEMs labor productivity, while no effect on the suppliers’ one.

Our empirical analyses suggest that, since in the past “mixed technology” regime (Calabrese, 2016; CLEPA, 2021) the growth of electric solutions has been steering both labor (among suppliers) and labor productivity (among OEMs) increases, the full electrification of the sector should not be feared as a source of socio-economic loss, while an opportunity to set new goals and collaborations as well as achieve green growth for the auto industry and its supply chain.
Further analyses are under (the author’s) development in order to investigate also the impact of eco-innovations on EU automotive labor structure (e.g changes in the types of occupation) and the role of national labor and environmental policies in this transitional process.