Greening the Economy from the Ground Up: How the Minimum Wage Affects Firms’ Pollution Emissions in China

Abstract

The implications of minimum wage standards have been widely debated, but their effects on firms’ pollution emissions and the underlying mechanisms remain underexplored. This paper finds that the introduction of minimum wage standards significantly reduces emissions of pollutants such as carbon dioxide and sulfur dioxide. Firms respond to rising minimum wages by optimizing their product mix, enhancing technological innovation, and improving managerial efficiency, which collectively curb pollution outputs. Our analysis using a random forest model shows that these effects are most pronounced in regions with higher economic development, stringent environmental regulations, and elevated minimum wage standards. Our findings augment the body of research on minimum wage standards and introduce novel insights for emission reduction strategies for firms.