The impact of electricity prices on jobs and investment in the Belgian manufacturing industry

Abstract

Belgium is losing manufacturing jobs and it is losing these jobs at a faster pace compared to most other European countries. Whilst the impact of labour costs on the competitiveness of our industry is much debated and documented, the impact of the price of electricity remains unquantified. Using data of 10 European, highly industrialised countries, we estimate the impact of electricity prices on jobs and investment in Belgian manufacturing. We estimate that the elasticity of employment with respect to the electricity price is on average -0.30 and the elasticity of investment equals on average - 0.55. This means that a drop in the price of electricity of 1% would lead, holding all other things equal, to 0.30% extra manufacturing jobs and 0.55% extra manufacturing investment. Our findings are robust to different calculation methods. Others have estimated that electricity prices in Belgium are 10%-35% higher than in the neighbouring countries. Combining this information with the estimated elasticities, we calculate a price drop of 10% of the Belgian electricity price would lead within the manufacturing industry to an increase of 12,000 full-time jobs and an increase of €550 Million in yearly investment. These numbers are likely to be an underestimation of the impact. We take a conservative stance on the price handicap and Belgium has historically specialised in the most electricity intensive sectors. Furthermore, our approach does not quantify spillovers to other manufacturing nor services industries.status: publishe