Analyzing the impact of low-carbon city pilot policy on enterprises' labor demand: Evidence from China

Abstract

Low-carbon city pilot policies (LCCPPs) are a crucial initiative to fulfill “peak carbon dioxide emissions” and “carbon neutrality”, which may also have prominent impacts on employment and economic development. We exploit the implementation of China's LCCPPs as an exogenous policy shock and employ a difference-in-differences (DID) model to investigate how LCCPPs affect enterprises' labor demand and their mechanisms. We observe that LCCPPs significantly increase enterprises' labor demand in pilot regions. After employing the instrumental variable approach to mitigate endogeneity problems, the results still hold. The mechanism analysis reveals that the implementation of LCCPPs enhances enterprises' labor demand by guiding or forcing enterprises to engage in front-end environment governance (changes in the production process). Specifically, this policy guides enterprises to develop innovative products and technologies that are beneficial to the environment, which not only directly stimulates the demand for technical personnel, but also boosts firm productivity and profits, thereby triggering the demand for personnel in the non-technical sector. Heterogeneity results show that LCCPPs significantly spur the labor demand of high-carbon emitting enterprises and low financing constraint enterprises. Furthermore, LCCPPs play a prominent role in stimulating the labor demand of enterprises in non-resource-based cities or cities with stringent environmental law enforcement. Our findings provide empirical support for other countries to drive the transformation of their economic system to low-carbon and green growth.