Can Environmental Regulation Improve Labor Allocation Efficiency? Evidence from China’s New Environmental Protection Law

Abstract

The environmental regulatory stringency and labor reallocation are two defining features in developing countries. This study empirically estimates the impact of environmental regulation on labor allocation efficiency. We adopt the implementation of New Environmental Protection Law (NEPL) as an exogenous shock on environmental regulation to carry out a quasi-natural experiment. We find that the increase in environmental regulatory stringency has a significant and positive impact on labor allocation efficiency. The impact is mainly driven by job transition from heavy polluting industries to non-heavy polluting industries. The heterogeneity analysis results show that NEPL promotes the allocation efficiency of economically developed cities, men, union members, and low- and middle-educated laborers. Our study provides empirical evidence for regionally differentiated environmental regulation policies.