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Cross-border environmental regulation and firm labor demand

Author

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  • Chakraborty, Pavel
  • Chakrabarti, Anindya S.
  • Chatterjee, Chirantan

Abstract

In 1994, due to environmental concerns, Germany banned a chemical called ‘Azo-dyes’, a primary input for the leather and textiles firms in India (a key exporter). Exploiting this as a quasi-natural experiment, we examine the effects of this cross-border regulatory change on labor compensation, particularly managerial, for both Indian upstream (dye-producing) and downstream (leather and textile) firms. We find that the regulation increased compensation of managers by 1.3%–18% in dye-producing firms compared to other chemical firms. This is due to the combination of changes such as investing in R&D, product churning, import of high-quality intermediates, due to the ban, which led to this change in within-firm labor composition. This increase in overall compensation is driven only by fixed component (wages), consistent with the effects of a long-run shock. We find no such effects for downstream firms. We believe, our study is one of the first to show that just like tariff, non-tariff barriers (NTBs) can also significantly affect within-firm labor composition.

Suggested Citation

  • Chakraborty, Pavel & Chakrabarti, Anindya S. & Chatterjee, Chirantan, 2023. "Cross-border environmental regulation and firm labor demand," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jeeman:v:117:y:2023:i:c:s0095069622001061
    DOI: 10.1016/j.jeem.2022.102753
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    More about this item

    Keywords

    ‘Azo-dyes’; Non-tariff barriers; Cross-border environmental regulation; Managerial compensation; Dye-producing firms; Upstream and downstream sectors;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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