The impact of the carbon trading market on corporate employment: Theoretical and empirical evidence

The low-carbon transition serves as a vital route to achieving sustainable development. Nevertheless, it unavoidably disrupts the existing economic trajectories. Whether low-carbon transition policies can strike a balance between employment and carbon abatement has attracted extensive attention. By theoretically clarifying the effect of the carbon trading market (CTM) on employment, this paper manually compiles a directory of regulated enterprises from China's pilot CTM for empirically verification, uncovering the underlying causes of the mechanism test. Our findings are as follows: (1) The output effect of the CTM curbs employment by decreasing enterprise output, whereas the substitution effect expands green job opportunities by spurring environmental governance investment. Overall, the net effect of the output and substitution effects has a positive influence on employment. (2) Mechanism tests reveals that the negative output effect is more prominent in markets with paid allocation of initial carbon quotas, while the positive substitution effect is more evident in markets with free allocation of initial carbon quotas. (3) Owing to the mechanism heterogeneity, markets with free allocation of initial carbon quotas have a more significant positive impact on employment, mainly driving the employment of low-skilled labor. This paper provides targeted policy implications for stabilizing employment and fostering sustainable development during the low-carbon transition process.