Energy transition and economy-wide employment: The distinct roles of realized transition and transition capacity

Understanding the employment consequences of energy transition is essential for advancing a just transition. This study distinguishes realized energy transition (RET), which captures structural shifts toward cleaner and more efficient energy sources, from energy transition capacity (ETC), which reflects an economy’s ability to support and sustain further transition. Using an unbalanced panel of up to 78 countries and regions from 2013 to 2023, we apply a two-step system GMM estimator to examine their associations with economy-wide employment. Both RET and ETC are positively associated with employment and remain significant when included jointly, indicating distinct but complementary effects. Mechanism analyses provide suggestive evidence that RET is associated with enhanced economy-wide employment by promoting environmental and renewable energy technology development, whereas ETC is associated with economy-wide employment by reducing PM2.5 concentrations. Their employment associations also vary across regions. Gender-disaggregated results show that the associations are positive and statistically significant for male employment, whereas the corresponding associations for female employment are statistically insignificant. Sectoral analysis shows that RET is associated with lower employment shares in several industrial, construction, and service sectors, whereas ETC is associated with a declining agricultural employment share and rising shares in industry, construction, and services. These findings highlight the need for regionally differentiated, gender-inclusive, and sector-specific transition policies.