Towards sustainability: Does energy efficiency reduce unemployment in African societies?

The Sustainable Development Goal 7 seeks universal access to energy, substantial increase in the share of
renewable energy and doubling of energy efficiency efforts. The success of these targets most likely depends on
maximizing, where they exist, positive synergies or trade-offs with other development outcomes. Studies
investigating the relationship between energy efficiency and (un)employment remain inconclusive and mainly
focus their analysis on the energy-supply side, neglecting the demand side. Moreover, these empirical studies
lack a sound theoretical framework that links unemployment to energy efficiency. Synthesizing the neoclassical
endogenous growth model with Okun’s Law, this study adopts a demand-side approach to examine the nexus between unemployment and energy efficiency, conditioning for heterogeneities in education. We apply the
stochastic frontier approach and the generalized method of moments to an unbalanced panel dataset for 51
African countries, spanning 1991–2017. We conduct several robustness checks to assess the stability of the
estimated relationship. The results confirm our theoretical prediction that, directly, energy efficiency reduces
unemployment. However, further empirics show that economies with better human capital experience greater
reduction in unemployment than those with less-developed human capital. This implies that investing in education
is a key complementary factor to enhance the unemployment-reducing effects of energy efficiency.