Labour-intensive services for a future-proof economy

18 Feb 2020

Lukas Hardt, Sustainability Research Institute, University of Leeds

The need for economic transformation

Current lifestyles in the UK and other developed countries are unsustainable. We need to rapidly reduce the environmental impacts that are associated with the goods and services we consume. For example we only have 30 years left to reduce global carbon emissions to (net) zero to meet the targets outlined in the Paris Agreement.

It is therefore clear that our lifestyle and economic structure in the UK will have to look very different in 30 years’ time. We need to produce less material and energy-intensive goods and services and focus instead on providing livelihoods in less harmful ways. If done right, such a transformation can have many social benefits, such as reduced working time, reduced inequality and stronger communities. However, it is unlikely to show up as an increase in GDP, at least in the way it is currently measured.

The role of labour-intensive services

One important concern with such a transformation is the growth of unemployment, because environmental constraints will make it more difficult to offset job losses from increasing labour productivity by expanding economic production.

One proposed solution is to increase the share of labour-intensive service sectors in the economy, such as care services, education, art or repair services. In these sectors, the value of the service provided is very closely tied to the labour time invested so that it does not make sense to increase labour productivity.

Therefore these services might provide the ideal fit for the climate-constrained economy of the future. Firstly, they have a lower environmental impact than the production of material goods. Secondly, these services make important contributions to human well-being. Lastly, with lower potential for increasing labour productivity, they are well placed to replace the jobs lost in other parts of the economy.

Investigating the empirical evidence for labour-intensive services

In a recent study we investigate the assumptions underlying such proposals  (see Hardt et al., 2020). Are these services really more environmentally benign than other economic sectors? Which sectors in the economy actually show the characteristics of low energy-intensity and low rate of labour productivity growth?

In order to answer these questions we use a multi-regional input-output model to calculate the inputs of final energy and labour hours that are embodied the whole global supply chains of different demand sectors in the UK and Germany. For example for every pound of demand spent on cars in the UK, we include the energy and labour inputs that are used by Chinese steel producers, German car manufacturers and UK car dealers.

We find support for the assumption that service sectors are more environmentally benign than other sectors, even when the whole supply chain is considered. For every Euro spent, service sectors, with the exception of transport, show less energy inputs than other sectors (Figure 1).


Graph for Blog

Figure 1. Sectoral embodied energy intensity plotted against sectoral final demand (top row) and sectoral embodied energy-labour ratio plotted against sectoral labour footprint (bottom row). The areas covered by the rectangles represent the total energy footprint associated with commercial activities (excluding energy use for private transport and residential purposes). Adapted from Hardt et al. (2020).

We also identify five labour-intensive service sectors that show the combination of low energy intensity and low rates of labour productivity growth in both countries and might therefore offer the potential to provide employment with a low-environmental impact. These are the sectors Hotels & Restaurants, Public Administration, Health Care, Education and Personal Services.

The challenges ahead

While shifts towards labour-intensive services can therefore contribute to the economic transformation needed, we also find two important challenges for realising this vision.

Firstly, even large shifts in demand towards labour-intensive services only lead to relatively small reductions in the overall supply-chain energy associated with demand in the UK and Germany. This is because large fractions of demand are already concentrated in low-energy service sectors. Such strategies therefore need to be accompanied by other measures, such efficiency improvements and reductions in demand.

Secondly, labour-intensive service sectors often feature continuously rising costs and prices in comparison to other sectors, which might make them less rather than more attractive. The reason is that labour-intensive services are cannot improve labour productivity and cut labour costs as fast as other sectors. We find some evidence for this pattern in our results. Any strategies for achieving shifts towards labour-intensive services need to find ways to work against such headwinds.


Hardt, L. et al. (2020) ‘Structural Change for a Post-Growth Economy : Investigating the Relationship between Embodied Energy Intensity and Labour Productivity’, Sustainability, 12(3), pp. 1–25. Available here.