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Dark side of environmental regulation: Wage inequality cost

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  • Liu, Yun
  • Zhang, Yifei
  • Yang, Yuxin
  • Chen, Xin

Abstract

Environmental regulations have both bright and dark consequences, and understanding the dark side is critical for policymakers. This paper investigates whether and how environmental regulation exacerbates the wage inequality between skilled and unskilled labor. Employing a triple difference-in-differences (DDD) estimation method on Chinese urban household survey data, we find a 1.7% increase in the wage gap after the implementation of a regional-specific environmental regulation. We show that the enlarged wage gap is mainly due to the intensive margin’s change and is dominated by the polluting sector rather than the non-polluting one. More importantly, the unappealing effect on wage inequality lasts in the long run and is not China-specific, according to our numerical simulation of a general equilibrium model. Finally, we also propose a non-environmental policy instrument to alleviate the negative impact. Overall, our work highlights that environmental regulation may have an unintended wage inequality cost, and our study is of generic policy implications to other economies.

Suggested Citation

  • Liu, Yun & Zhang, Yifei & Yang, Yuxin & Chen, Xin, 2023. "Dark side of environmental regulation: Wage inequality cost," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 524-544.
    • Handle: RePEc:eee:jcecon:v:51:y:2023:i:2:p:524-544
    DOI: 10.1016/j.jce.2022.11.004
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    References listed on IDEAS

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    2. Xiaoke Zhu & Qiyun Deng & Shuo Zhang, 2024. "Toward low-carbon transition: Does carbon regulation matter for spatial development inequality?," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-29, December.

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    More about this item

    Keywords

    Environmental regulation; Wage inequality; China;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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