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Environmental regulation and employment: Evidence from China's new Environmental Protection Law

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  • Li, Zhuo
  • Li, Yuanqi

Abstract

Realizing environmental protection and employment stability when facing strict environmental regulations is an essential issue of concern for many developing countries, including China. Based on a dataset of Chinese listed companies and a dataset of Chinese individual labor-force surveys, this paper uses an estimation technique pairing propensity score matching with a difference-in-differences estimator to examine the impact of the new Environmental Protection Law (EPL) on the supply and demand of labor at the micro level and the reallocation effect of interindustry labor at the macro level. The results show that the new EPL generated employment losses at the micro level. The policy reduces firms’ labor demand by lowering firms’ output and total investment expenditures and, in the process, does not stimulate firms’ innovative behavior. Moreover, implementing the new EPL reduces the wage income of workers, which in turn reduces the labor supply. Conversely, at the macro level, the new EPL promotes the transfer of labor from polluting to cleaner industries, realizes the reallocation of labor between industries, and thus promotes the transformation and upgrading of regional industrial structure.

Suggested Citation

  • Li, Zhuo & Li, Yuanqi, 2024. "Environmental regulation and employment: Evidence from China's new Environmental Protection Law," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 400-416.
  • Handle: RePEc:eee:ecanpo:v:82:y:2024:i:c:p:400-416
    DOI: 10.1016/j.eap.2024.03.019
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Guanglai & Zhang, Ning, 2024. "Environmental regulation and worker earnings: Evidence from city-level air quality standards in China," Energy Economics, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    Environmental regulation; Firm's labor demand; Resident's labor supply; Interindustry labor reallocation; PSM-DID method;
    All these keywords.

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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