Employment in Britain and the circular economy

January saw the publication of a report entitled Employment and the circular economy – job creation in a more resource efficient Britain. This, in my view, is the most sophisticated study to date into ways that the circular economy could stimulate jobs and growth in the UK. Drawing on labour market statistics and patterns of employment at national and regional level, the study estimates a mid-range growth potential across the economy of 205,000 gross jobs to 2030, with net creation (that is, subtracting jobs that are replaced or substituted) of 54,000 direct jobs – jobs immediately associated with circular economy activities such as remanufacturing and repair.

In our report, Driving green growth – The role of the waste management industry and the circular economy, SITA UK estimated that the circular economy could potentially create 19,000-36,000 direct jobs by 2020 which, prorated to 2030, more or less matches the new mid-range estimate. Given the radically different approaches, too much cannot be made of this correspondence.

The economics of the circular economy is perhaps its least studied aspect relative to, say, the net flow of material resources compared to a linear economy. Despite the considerable methodological advance made in the new study, questions regarding job creation and growth still remain to be explored.

For instance, in a circular economy, using a repaired or remanufactured product would delay or perhaps cancel the manufacture of a new product. As the new study confirms, some jobs in the linear economy would disappear as jobs rise in the circular economy.

This rise is disproportionate, because circular economy activities tend to be more labour intensive – hence the net creation of new jobs. But this has implications for labour productivity in the circular economy, because output will remain static at best, or even decrease relative to the linear economy. The same (or lower) quantum of goods will be produced by a larger labour force.

There is no reason to suppose that improving labour productivity would be any less important in a circular economy than it is in a linear economy, in the long run bringing downward pressure on labour costs.

But even if the net increase in jobs rebalances to a marginal increase as we mature into a circular economy, there is every reason to continue with the transition. The rising cost and scarcity of resources will drive this change, and in the process reshape the labour market.