Skill-biased labour market effects of environmental policy and green energy transition in Italy

Environmental regulations and energy transition play an instrumental role in pollution mitigation and labour dynamics, impacting skilled-biased workers. While previous research has addressed the green energy transition and environmental regulations, the exploration of their impact on skill-biased labour has remained limited. This study integrates Environmental Policy Stringency (EPS), Green Energy Transition (GETR), and macroeconomic indicators to analyse the skill structure, focusing on high-skilled (HSL) and low-skilled (LSL) labour demand in Italy from 1992 to 2020. By employing the Novel Dynamic Simulated Autoregressive Distributed Lag (DYARDL) model and the frequency domain causality (FDC) test, our research investigates both the long term and short term relationships among variables, while exploring the causal direction. The study's findings strongly suggest that variables exhibit longterm cointegration. Moreover, the research indicates an anticipated rise in demand for high-skilled labour due to stringent environmental regulations and the transition to renewable energy. Conversely, the study highlights a potential decrease in the demand for low-skilled labour in traditional energy sectors. It is advisable to regulate labour market impact assessments before implementing any significant changes; strengthen the social safety net to cushion the transition phase; establish a labour monitoring unit to analyse evolving trends of the Green transition impacting labour markets; target green investments geographically to upskill semi-skilled and unskilled workers; simplify the regulatory framework; and mainstream green apprenticeships and skill-based modules in formal education.